guide to mergers & acquisitions in asia (may 2004)

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Guide to mergers and acquisitions in Asia Published by White Page in association with Freshfields Bruckhaus Deringer

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Page 1: Guide to mergers & acquisitions in Asia (May 2004)

Guide to mergers and acquisitionsin Asia

Published by White Pagein association with Freshfields Bruckhaus Deringer

Page 2: Guide to mergers & acquisitions in Asia (May 2004)

Foreword

We are delighted to be publishing this third edition of the Guide tomergers and acquisitions in Asia with Freshfields Bruckhaus Deringer.

After a sharp decline in 2002 and into the first half of 2003, M&Aactivity across the region is now on the rise – especially in China,Hong Kong and Japan. Moreover, although deal activity has beenslow, the pace of development in Asian M&A has accelerated in thethree years since we published the last edition of this guide.

As advisors on many of the region’s most groundbreaking deals,Freshfields Bruckhaus Deringer, and its relationship firms acrossAsia, have played a lead role in many of these developments. Thiscombined wealth of expertise, spanning the ten Asian jurisdictionscovered in this guide, ensures that the authors’ analysis of each legaland regulatory regime benefits from a fusion of hands-on,transactional experience and market-leading professionalcapability.

Nigel Page, DirectorWhite Page Ltd

Page 3: Guide to mergers & acquisitions in Asia (May 2004)

Guide to mergers and acquisitions in Asia 1

Contents

Introduction 2

Robert Ashworth, Head of corporate group, AsiaFreshfields Bruckhaus Deringer

Hong Kong 7

Robert AshworthFreshfields Bruckhaus Deringer, Hong Kong

Indonesia 16

Miranti M Ramadhani, Carmen B Soedarmawan, Emir KusumaatmadjaMochtar, Karuwin & Komar, Jakarta

Japan 26

Timothy Wilkins, Nobuo Nakata, Mami Karatsu, Mikiko HayashiFreshfields Law Office, Freshfields Foreign Law Office, Tokyo

Malaysia 35

Lim Kar Han, Richard Ding

Zaid Ibrahim & Co, Kuala Lumpur

People’s Republic of China 43

Douglas Markel, Huang ChengFreshfields Bruckhaus Deringer, Beijing

Philippines 54

Andres B Sta Maria, Annalisa J CarlotaSyCip, Salazar, Hernandez & Gatmaitan, Manila

Singapore 64

Elaine Williams, Gary Pryke, Kate StricklandFreshfields Drew & Napier, Singapore

South Korea 73

KS Jeon, Douglas Lee, CS HwangKim & Chang, Seoul

Taiwan 78

Sophia HH Yeh, CV Chen, Kwan-Tao LiLee & Li, Taipei

Thailand 85

Elaine Williams, Veeranuch ThammavaranucuptFreshfields Bruckhaus Deringer, Bangkok

Freshfields Bruckhaus Deringer author profiles 94

Guide to mergers and acquisitions in Asia

Consulting Editor: Robert Ashworth, Freshfields Bruckhaus Deringer

Editor: Callie Leamy

Production: Mathew Lyons, Annette Joyce

Printing and binding: Garden House Press

Published by White Page Ltd

17 Bolton Street

Mayfair

London W1J 8BH

Tel: +44 20 7408 0268

Fax: +44 20 7408 0168

First published 1999

Third edition 2004

ISBN: 0-9535345-7-X

Guide to mergers and acquisitions in Asia

© Freshfields Bruckhaus Deringer and White Page Ltd 2004

Freshfields Bruckhaus Deringer wishes to thankeach of the law firms contributing chapters to thisGuide to mergers and acquisitions in Asia.

Copyright in individual chapters vests with theauthors. No photocopying: copyright licences donot apply.

This publication is intended to provide a generalguide to the main legal implications of merger controlregulation in the individual jurisdictions described.The information and opinions which it contains arenot intended to be a comprehensive study, nor toprovide legal advice, and should not be treated as asubstitute for specific advice concerning particularsituations (where appropriate, from local advisers).This publication is written on the basis of law andpractice as at 31 December 2003.

Page 4: Guide to mergers & acquisitions in Asia (May 2004)

In the introduction to our last Guide to mergers and acquisitons in Asia in 2001, we noted the

dramatic evolution of mergers and acquisitions activity in Asia over the previous two years. If

anything, the pace of change since then has become even more frenetic. As legal advisors on some

of the most groundbreaking deals across Asia, we have seen our own M&A practice advance in line

with new developments — and have been well-placed to speed the introduction of new techniques

and concepts to the region.

However, while the pace of development has been buoyant since 2001, one could not say the same

of the level of market activity. Starting from 2001, a combination of the dot.com bust, global political

and economic uncertainty and falling valuations saw deal sizes and volumes decline sharply through

2002 and into the first half of 2003. A combination of caution on the part of buyers, and vendors’

unwillingness to reduce their price expectations to realistic levels, saw the flow of deals slow to a trickle.

The seeds of recovery

However, even as M&A activity in Asia plumbed the depths, growing causes for optimism were

emerging. China’s accession to WTO represents the region’s most significant economic

development for several years, and has already seen China make significant steps towards

dismantling commercial barriers.

At the same time, the financial and regulatory shockwaves from the corporate disasters in the US

have seen several major Asian economies start to embrace higher standards of corporate

governance, reflecting unwillingness among investors and debt financiers to accept opaque

management practices, and governments’ growing realisation that poor corporate governance will

restrict their future ability to do business on the world stage.

While these trends have been accompanied by a degree of regulatory change, including the impact of

the US Sarbanes-Oxley legislation, it is shifts in corporate attitude and mindset amongst family-owned

businesses that are having the greatest impact on Asian businesses, notably in Korea and mainland

Guide to mergers and acquisitions in Asia2 Copyright © Freshfields Bruckhaus Deringer 2004

Introduction Robert AshworthFreshfields Bruckhaus

Deringer

Page 5: Guide to mergers & acquisitions in Asia (May 2004)

Introduction

Guide to mergers and acquisitions in Asia 3

China where organisations have increasingly come to accept the need for transparency in their management and business

dealings. Further signs of progress include China’s move to introduce new regulations governing the M&A market in general,

and investment in state-owned companies in particular, alongside new anti-trust rules.

It is still early days, but all these changes have helped to put a platform in place for a soundly-based and sustainable

upturn in Asian M&A. A number of international investors have already taken the opportunity to invest in Chinese

companies up to the limits allowed by the WTO rules, and inevitably these companies will develop governance and

management practices more in line with Western norms.

Geographical shifts – and a new groundswell of deals

A further significant change during the past three years has been the continuing evolution of the marketplace’s

geographical orientation. Shanghai’s rapid development means it makes more and more sense as a base for China work.

Hong Kong remains the key hub for the rest of North Asia, and is set to hold on to that position for the foreseeable future.

On the basis of recent and emerging trends, there is real cause for optimism that we are on the verge of a significant

bounce-back in M&A activity — especially in China, Hong Kong and Japan. While the prospects are increasingly bright

across the Asia region, they are particularly exciting in these economies.

A number of recent deals on which Freshfields Bruckhaus Deringer has advised indicate that this upturn is already under

way. In June 2003 Tesco, the biggest supermarket operator in the UK, completed a friendly takeover of a Tokyo-based

retail chain, C Two-Network. This US$286 million deal, executed by way of a tender offer, was hugely significant as a

reflection of the increasing opportunities now open to inbound acquirers in Japan.

Finance sector mergers under way

The beginnings of renewed M&A activity are also evident in Hong Kong. Corporate finance activity there is increasingly

buoyant, driven particularly by efforts from Hong Kong-based financial institutions to gear themselves up to address the

massive mainland China market. With the Closer Economic Partnership Agreement (CEPA) offering Hong Kong

institutions relatively favourable entry terms to China, the Hong Kong Monetary Authority (HKMA) has been openly

Page 6: Guide to mergers & acquisitions in Asia (May 2004)

encouraging a process of consolidation among Hong Kong banks as a way for them to reach the capital thresholds

stipulated by Chinese regulators.

Again, Freshfields Bruckhaus Deringer has been directly involved in this trend. In August 2003 we helped to create the

fourth largest Hong Kong-based listed bank, when we advised Wing Hang Bank on its acquisition of Chekiang First Bank

from Mizuho for a total consideration of US$613 million. We also advised Wing Hang on a US$275 million subordinated

debt issue the following month, the proceeds from which were used in part to finance the Chekiang acquisition.

In December 2003, we represented Fortis Bank on the disposal of its Hong Kong banking operations to ICBC.

M&A deals are also on the up in other areas of the finance sector, underlining the scope of the nascent recovery. In May 2003,

Freshfields Bruckhaus Deringer advised Millea Group, an affiliate of the Tokio Marine and Fire Insurance Co, on its US$127

million purchase of a 24.9 per cent stake in Sino Life Insurance Co. And in October 2003 the firm acted for ABN AMRO Asia

Securities on its US$99 million tender offer for Asset Plus Securities, to create Thailand’s largest fully-integrated securities firm.

Supporting the recovery

Various other developments are converging to support the pick-up in Asian M&A. PRC-headquartered mega-companies

are beginning to flex their muscles internationally, particularly in power and telecoms. Actual deals will inevitably follow in

Asia, the US and Europe, as these companies grow in confidence.

Another increasingly active participant in M&A across Asia is the US venture capital industry. The Asian private equity

scene is still relatively underdeveloped, presenting big opportunities for early entrants. Recent deals such as Newbridge

Capital’s purchase of Korea’s Hanaro Telecom in partnership with AIG, Carlyle Group’s rival tie-up with LG Group for the

same target, and Ripplewood’s acquisition of Japan Telecom’s fixed-line business from its major shareholder, Vodafone,

all herald more activity to come.

Meanwhile, contested bids — for so long a virtual non-starter in Asia — are now coming onto the agenda. While to date

there have been very few hostile takeovers even attempted in Asia, the fact now is that greater commercial focus, coupled

with a growing recognition that family ownership is not always the best structure for long-term expansion and value

creation, are creating conditions in which such bids may succeed.

Introduction

Guide to mergers and acquisitions in Asia4

Page 7: Guide to mergers & acquisitions in Asia (May 2004)

Introduction

Guide to mergers and acquisitions in Asia 5

More generally, the importance of M&A to the future economic well-being and dynamism of the region is

increasingly appreciated by managements and policymakers because — when done properly — it is demonstrably

value-enhancing and provides greater strategic focus. We remain some distance from the emergence of a

fully-fledged public M&A market in Asia. But at least the development of such a market is now in sight, and the

fundamentals are in place.

Towards the uplands

With the performance statistics for 2003 now finalised by Thomson Financial, there are conflicting signs of

recovery for the Asian market. In Japan, there was a surge of activity during 2003, translating into a massive

53.5% increase in the value of announced deals (as compared with 2002 totals). With announced deal value

of US$74.9 billion, and number of deals totalling 1,816 (compared with 1,587 deals announced during 2002), the restructuring

boom in Japan has generated very substantial deal activity. That said, the number of completed deals in Japan only rose by

1.5% over the same period, with US$71.8 billion in completed M&A deals. Ex-Japan, the picture for 2003 was less rosy, with

announced M&A activity declining by 13.33% to US$98.7 billion, from US$113.9 billion in the previous year.

These figures bear witness to the fact that 2003 was a difficult year for everyone involved in Asian M&A . Ex-Japan, the

China market was the busiest in terms of target nation with a total of 1,504 M&A transactions for the full-year 2003

resulting in US$28.5 billion total deal value. South Korea was the second-most active with 236 deals totalling

US$13.8 billion, and the third was Hong Kong with 567 transactions representing US$10.2 billion of business. The

telecoms industry was once again the most active sector overall, creating activity worth US$15.4 billion from 123 deals.

This was followed by the Commercial Banks and Bank Holding Company sector, and by the Investment & Commodity

Firms sector.

Despite the challenging conditions for deal-making across the region, Freshfields Bruckhaus Deringer is delighted to have been

placed first for announced and completed deals in Thomson Financial’s 2003 league table for Asia (ex-Japan). The firm advised

on US$15.97 billion of transactions from 38 announced deals (and advised on US$6.11 billion of business from 34 completed

transactions). Looking ahead, we expect to be well placed to advise on anticipated future M&A opportunities, as the market

incorporates ever more innovative financing methods, such as structured finance and derivatives.

Page 8: Guide to mergers & acquisitions in Asia (May 2004)

Certainly, the Asian M&A market, like its global counterpart, has been through a tough three years. There are,

however, encouraging signs that these challenging times, coupled with parallel political and economic developments,

have left the market superbly positioned for a robust and long-term revival in activity. Building on its top-ranked

performance and reputation across the region, Freshfields Bruckhaus Deringer looks forward to playing a full and active

role in driving that recovery forward.

Introduction

Guide to mergers and acquisitions in Asia6

Page 9: Guide to mergers & acquisitions in Asia (May 2004)

Guide to mergers and acquisitions in Asia 7

Hong Kong

1 Are there any restrictions on foreign ownership of shares?

There are no restrictions on foreign ownership that are generally applicable to investments in the

shares of companies incorporated in Hong Kong. However, ownership restrictions do apply to a

small number of sectors and industries, including the following:

(a) Banking

No person may become a majority shareholder controller or minority shareholder controller of an

authorised institution (eg banks and deposit-taking companies) incorporated in Hong Kong unless

the prior approval of the Hong Kong Monetary Authority (HKMA) has been obtained.

A majority shareholder controller is a person who controls more than 50 per cent, and a minority

shareholder controller is a person who controls at least 10 per cent, but not more than 50 per cent,

of the voting power of the institution.

(b) Insurance

In relation to an authorised insurer incorporated in Hong Kong, no person may exercise, or control

the exercise of, 15 per cent or more of the voting power at any general meeting of the insurer unless

that person has complied with the relevant statutory obligations (discussed below).

(c) Television

Persons not ordinarily resident in Hong Kong are unqualified voting controllers and are

prohibited from acquiring or holding 2 per cent or more of the voting control of a television

licensee without the prior approval of the Broadcasting Authority (BA). In addition, if the

aggregate number of shares held by all unqualified voting controllers exceeds 49 per cent, the

total number of votes they are entitled to cast at shareholders’ meetings is capped at 49 per cent.

Other classes of persons (eg newspaper publishers and broadcasters) require approval

Freshfields Bruckhaus Deringer

Page 10: Guide to mergers & acquisitions in Asia (May 2004)

from the Chief Executive in Council to hold office in, or control more than 15 per cent of the voting

shares of, the licensee.

(d) Sound broadcasting

There is also a 49 per cent cap on the ownership of shares in a sound broadcasting licence holder

by persons not ordinarily resident in Hong Kong. Certain other classes of persons (eg advertising

agents and broadcasters) require approval from the Chief Executive in Council to control 15 per

cent of voting rights or 15 per cent of the board composition of a sound broadcasting licensee.

Interests in shares exceeding 15 per cent of voting shares in a licensee may not be transferred or

acquired (directly or indirectly) within three years following the grant of the licence, unless the

consent of the BA has been obtained.

(e) Others

Certain business areas and companies are owned directly by the Government of the Hong Kong

SAR. Outside investment in these areas and companies is, therefore, not possible. Examples are

the Kowloon-Canton Railway Corporation and Radio Television Hong Kong.

2 What is the relevant legislation relating to foreign ownership and who enforces it?

(a) Banking

The restrictions on ownership of authorised institutions are contained in the Banking Ordinance.

The HKMA regulates the banking sector in Hong Kong.

(b) Insurance

The Insurance Companies Ordinance contains the restrictions on ownership of authorised insurers.

The regulator of insurance companies in Hong Kong is the Office of the Commissioner of Insurance

(OCI), which has been appointed the Insurance Authority under the Ordinance.

(c) Television

The restrictions relating to television are contained in the Broadcasting Ordinance. This area is

supervised by the BA.

(d) Sound broadcasting

The restrictions in the sound broadcasting field are found in the Telecommunications Ordinance and

are enforced by the Office of the Telecommunications Authority and the BA.

Hong Kong • Freshfields Bruckhaus Deringer

Guide to mergers and acquisitions in Asia8

Page 11: Guide to mergers & acquisitions in Asia (May 2004)

3 What approvals are needed and how long does it take to obtain them?

(a) Banking

Before becoming a majority shareholder controller or minority shareholder controller of an authorised

institution incorporated in Hong Kong, notice has to be given to the HKMA. Approval will be duly

obtained once the HKMA gives its consent (which may be conditional), or when three months has

passed since notice was given without a notice of objection being served by the HKMA.

(b) Insurance

Notice has to be given to the OCI of any proposal to acquire 15 per cent or more of an insurance

company incorporated in Hong Kong. Approval will be duly obtained once the the OCI gives a

notice of no objection, or when three months has passed since notice was given without a notice

of objection being served by the OCI.

(c) Television

The Broadcasting Ordinance does not contain specific provisions relating to the time it takes the

BA to approve an acquisition of a shareholding of 2 per cent or more of a television licensee.

4 Are there any exchange control laws or restrictions on the repatriation of profits?

There are no exchange control laws or restrictions on the repatriation of profits in Hong Kong.

5 What rules govern takeovers or mergers of listed companies and who enforces them?

Takeovers and mergers affecting public companies in Hong Kong or companies with a primary

equity listing in Hong Kong are subject to the provisions of the Hong Kong Code on Takeovers and

Mergers (Code). Although the Code does not have the force of law, it applies, in practice, to all

public takeovers and mergers in Hong Kong. The Code is administered by the Securities and

Futures Commission (SFC) through its Executive.

Takeovers and mergers of Hong Kong-listed companies also need to be carried out in compliance

with the listing rules (Listing Rules) issued by The Stock Exchange of Hong Kong Limited

(Stock Exchange).

6 What is the level of disclosure for shareholdings? Does a memorandum of understanding relating to the

acquisition of shares need to be disclosed?

(a) Securities and Futures Ordinance

The legal obligations concerning the disclosure of interests in shares listed in Hong Kong are

imposed by the Securities and Futures Ordinance (SFO). The disclosure obligation is triggered when

the relevant interest increases to 5 per cent or more in nominal value of shares that carry voting

Freshfields Bruckhaus Deringer • Hong Kong

Guide to mergers and acquisitions in Asia 9

Page 12: Guide to mergers & acquisitions in Asia (May 2004)

rights, or decreases to below 5 per cent. Disclosure must be made to the Stock Exchange and the

company within three business days (save where the Code applies — see below). Subject to certain

exceptions, disclosure is also required if the notifiable interest changes by a whole percentage point

— for example, from 10.9 per cent to 11.2 per cent.

In some circumstances, there may be an additional duty to disclose the obtaining or disposing of

any short position of 1 per cent or more in voting shares of the target company.

The information required to be disclosed is specified in the SFO and includes such items as the date

of the relevant event, the total number and class of shares held and the nature, as well as the

highest and average amount, of consideration payable or receivable for the acquisition or disposal

of the interest in shares. With respect to on-exchange transactions, the highest and average prices

the shareholder paid for the interest acquired must be disclosed.

An unlisted corporate substantial shareholder will also be required to disclose the details of any

person in accordance with whose directions or instructions it or its directors are accustomed

(whether legally or otherwise) to act. This is intended to reveal the “real” person who stands behind

a substantial shareholder.

The disclosure provisions are also meant to identify concert party agreements, whereby a

controlling shareholder (meaning a person holding 30 per cent or more in voting rights) or a director

of a listed target company provides any loan or security to another person on the understanding,

or with the knowledge, that the loan or security will be used or applied for the acquisition of

an interest in that target company, unless the financing is provided in the controlling shareholder’s

or director’s ordinary course of business as a qualified lender. Compliance with the disclosure

provisions may reveal the warehousing of shares by controlling shareholders and helps to

avoid breaches of the minimum public float requirement applied to a listed company under the

Listing Rules.

An obligation may also arise under the SFO in response to an investigation made by the company

into its own ownership. For this obligation there is no percentage threshold. The extent of the

disclosure required depends, in this case, upon the form of the enquiry, and disclosure must be

made to the company within whatever “reasonable” time it specifies. It should be noted that

additional disclosure obligations apply to directors and chief executives of listed companies.

(b) The Code

The Code imposes disclosure obligations during the offer period. All parties to a takeover or merger

transaction and any of their associates are required to disclose their dealings in relevant securities

during the offer period. Associates include persons acting in concert and also persons who, or who

as a result of any transaction, own or control at least 5 per cent in relevant securities of the offeror

or the target.

Hong Kong • Freshfields Bruckhaus Deringer

Guide to mergers and acquisitions in Asia10

Page 13: Guide to mergers & acquisitions in Asia (May 2004)

Freshfields Bruckhaus Deringer • Hong Kong

Guide to mergers and acquisitions in Asia 11

Disclosure under the Code is required to be made to the company, the SFC and the

Stock Exchange not later than 10.00 am on the business day following the date of the acquisition

or disposal.

Persons who manage investment accounts on a discretionary basis and persons who trade as

principals in securities may apply to the SFC for “exempt fund manager” or “exempt principal trader”

status, respectively. Exempt fund managers will not be presumed to be acting in concert with any

offeror or the offeree company and will not be required to disclose their dealings publicly (although

private disclosure to the SFC will still be required). Subject to public disclosures and other restrictions,

exempt principal traders who conduct trading in their ordinary course of business, particularly arbitrage

or hedging related activities, will be exempted from the concert party presumption.

(c) Disclosure of memorandum of understanding (MOU)

A non-legally binding MOU relating to an offer or possible offer does not automatically need to be

announced. However, where such an MOU is entered into and not announced, details need to be

disclosed to the SFC. In addition, if a Hong Kong-listed company is party to an MOU it would need

to consider whether to disclose it to the public, as part of the company’s general obligation to keep

shareholders informed of any material and potentially price-sensitive information.

If the MOU constitutes a binding agreement to acquire shares (whether conditional or not), it will be

taken into account in determining whether a discloseable interest is held for the purpose of

disclosure under the SFO.

7 Are there any rules restricting the acquisition of shares in a listed company?

The Code regulates the acquisition of shares in public companies in Hong Kong. There is no

equivalent in Hong Kong of the Substantial Acquisition Rules issued by the Takeover Panel in the

United Kingdom. The Listing Rules issued by the Stock Exchange include a requirement for at least

a prescribed percentage of any class of listed securities to be held by the public. The percentage

depends on the market capitalisation of the company in question.

8 What are the key conditions attaching to a takeover offer?

Except with the consent of the SFC, all offers which are subject to the Code must be conditional

on the offeror having received acceptances in respect of shares which, together with shares

acquired or agreed to be acquired before or during the offer, will result in the offeror and persons

acting in concert with it holding more than 50 per cent of the voting rights of the offeree company.

A voluntary offer may contain additional conditions, including an acceptance level of shares carrying

a higher percentage of the voting rights. However, offers governed by the Code may not normally

be made subject to conditions which depend on judgments by the offeror or the fulfilment of which

Page 14: Guide to mergers & acquisitions in Asia (May 2004)

is in its hands. Care needs to be taken in framing any conditions which depend on the offeror’s

due diligence.

Once an offer has become or is declared unconditional, it must remain open for not less than a

further 14 days. Consideration cheques must be dispatched to accepting shareholders within 10

days of the later of the following two events: (i) the offer being declared unconditional and (ii) the

date the shares are tendered to the offeror.

9 Is there a level at which a mandatory general offer is required? What are the consequences of reaching it?

Under the Code, a mandatory general offer is required if one of the following conditions is met:

A mandatory offer must be in cash (or be accompanied by a cash alternative — see below) and may

only be conditional upon receiving acceptances which, together with voting rights already held by the

offeror and any person acting in concert with it, amount to more than 50 per cent of the voting rights

of the offeree company.

Occasionally, a person or group of persons acquiring more than 50 per cent of the voting shares of

a company will thereby acquire or consolidate control (meaning 30 per cent of the voting rights) in a

second company because the first company itself has effective control of the second company. The

SFC will not normally require a mandatory general offer for the second company unless:

• the shareholding in the second company is significant in relation to the first company: relative

values of 60 per cent or more will normally be regarded as significant; or

• one of the main purposes of acquiring control of the first company was to secure control of the

second company.

10 Are there any provisions which establish a minimum price for a takeover offer?

Generally, where an offeror (or its concert parties) has purchased shares in the offeree company (i) within

3 months prior to the offer period or (ii) during the interval between the offer period and the

Hong Kong • Freshfields Bruckhaus Deringer

Guide to mergers and acquisitions in Asia12

Initial percentage stake Trigger point

Less than 30 per cent Acquisition of additional shares which gives the offeror and any

person acting in concert with it after the acquisition an aggregate

holding of 30 per cent or more of the voting rights in the company

Between 30 per cent Acquisition of additional shares which results in a percentage

and 50 per cent increase in the interest in voting rights of the offeror and any person

acting in concert with it of more than 2 per cent from the lowest

percentage holding in the preceding 12-month period

Page 15: Guide to mergers & acquisitions in Asia (May 2004)

Freshfields Bruckhaus Deringer • Hong Kong

Guide to mergers and acquisitions in Asia 13

announcement of firm intention to make an offer, the offer must be on no less favourable terms than

those applying to his purchase.

Furthermore, if after an announcement of firm intention to make an offer and during the offer period, the

offeror (or its concert parties) purchases shares in the offeree company at above the offer price, then

the offer price must be increased to a level not lower than the highest price (excluding costs) paid for

such shares.

The consideration for a voluntary general offer can be in cash or some form of security, such as shares

in the offeror. However, if the offeror (or any person acting in concert with it) has acquired for cash shares

in the offeree company, which carry 10 per cent or more of the voting rights, during the offer period and

within six months prior to the commencement of the offer, the general offer must be in cash, or be

accompanied by a cash alternative, at not less than the highest price paid by the offeror (or any person

acting in concert with it) for shares of the same class during that period.

A mandatory offer must be in cash, or be accompanied by a cash alternative, at not less than the

highest price paid by the offeror or any person acting in concert with it for shares carrying voting

rights during the offer period and within six months prior to its commencement.

11 Does a 75 per cent shareholder achieve effective control? If not, why not?

Subject to any provision to the contrary contained in a company’s constitutive documents, a 75 per

cent shareholder has effective control of a Hong Kong-incorporated company, as he is able to

procure that all resolutions are passed at a meeting of the company, whether ordinary resolutions

(which require a simple majority of members present and voting) or special resolutions (which

require a three-quarter majority).

12 Can a purchaser compulsorily acquire or squeeze out a minority?

Under the Companies Ordinance, where an offeror has, within four months of the date of a takeover

offer for a Hong Kong-incorporated company, acquired or contracted to acquire by virtue of the

offer 90 per cent or more (in value) of the shares to which the offer relates, the offeror may acquire

the remaining shares from minority shareholders compulsorily. A set procedure for compulsory

acquisition is set out in the Companies Ordinance.

In addition, where the Code is applicable, an offeror must have acquired the shares of 90 per cent

of disinterested shareholders (ie shareholders other than the offeror and its concert parties) before

it is able to acquire compulsorily the remaining shares.

Page 16: Guide to mergers & acquisitions in Asia (May 2004)

13 What is the takeover timetable for achieving full control?

The timetable for a voluntary general offer under the Code is set out below. Variations to this

timetable may be permitted, depending on the circumstances.

14 What alternatives are there for achieving control, eg scheme of arrangement with shareholders?

A listed company incorporated in Hong Kong may be taken private by way of a scheme of

arrangement under the Companies Ordinance. The principal advantage of such a scheme is that

once it is approved by the appropriate shareholders’ resolutions and duly sanctioned by the court,

it is binding on all shareholders and the company. In most cases, a scheme will involve a

cancellation of the shares held by the minority shareholders in return for a fixed price payment, a

corresponding reduction of the share capital representing those minority shares and an issue of new

shares to the offeror that equals the reduced share capital.

In order to be effective under the Companies Ordinance, a scheme must be approved by a majority

in number representing 75 per cent in value of the shareholders present and voting at a general

meeting. In addition, the Code requires the scheme to be:

• approved by at least 75 per cent of votes cast by disinterested shareholders (ie shareholders

other than the offeror and its concert parties) in person or by proxy at a meeting of these

shareholders; and

• not disapproved by more than 10 per cent of votes attached to disinterested shares.

Hong Kong • Freshfields Bruckhaus Deringer

Guide to mergers and acquisitions in Asia14

Date Particulars

Announcement Offeror notifies offeree of firm intention to bid

Day 0 Posting date of offer document:• within 21 days of announcement (cash offer)• within 35 days of announcement (securities offer)

Day 14 Last day for board of the offeree to send circular to advise shareholders of its views withrespect to offer

Day 21 First permitted closing date:• if successful — press announcement, announcing offer unconditional • if unsuccessful — board meeting of offeror to consider extending and/or revising offer

Day 39 Last day for offeree company to release new information (eg trading results, profitforecasts, asset valuations, major transactions, etc)

Day 42 Assuming closing date is Day 21, right of withdrawal arises for acceptor if offer is notunconditional

Day 46 Last day for voluntary revision of offer

Day 60 Last day for offer to become or to be declared unconditional

Day 70 Last day for settlement of consideration if offer unconditional on Day 60

Page 17: Guide to mergers & acquisitions in Asia (May 2004)

Freshfields Bruckhaus Deringer • Hong Kong

Guide to mergers and acquisitions in Asia 15

Under the Code, these requirements also apply to proposals to delist a company.

In addition to shareholders’ approval, the scheme must be approved by the court.

15 What is needed in order to delist a company?

A delisting generally takes place in connection with either a general offer or a scheme of

arrangement. In addition to the requirements for these procedures outlined above, the Listing

Rules provide that an issuer which has no alternative listing on another stock exchange

recognised by the Stock Exchange may not voluntarily withdraw its Hong Kong listing without the

permission of the Stock Exchange unless shareholders’ approval is obtained in advance. As from

31 March 2004, the relevant shareholders’ resolution must be:

• approved by at least 75 per cent of votes cast by independent shareholders (ie shareholders

other than those holding 30 per cent or more in voting rights) in person or by proxy at a meeting

of these shareholders; and

• not disapproved by more than 10 per cent of votes attached to independent shares.

16 Are there any anti-competition or monopoly laws?

There are no generally applicable anti-competition or monopoly laws, although restrictions do

exist in certain sectors such as broadcasting and telecommunications.

17 What stamp duties or other taxes apply to a transfer of shares?

Stamp duty at the rate of 0.2 per cent of the amount of the consideration or the value of the shares

is payable on transfers of shares of Hong Kong-listed companies or Hong Kong-incorporated

companies. The seller and the buyer usually pay this in equal proportions. No stamp duty is payable

on transfers between members of the same group (a 90 per cent ownership threshold applies).

Hong Kong does not tax capital gains arising from the disposal of shares.

11th Floor

Two Exchange Square

Central

Hong Kong

Tel: + 852 2846 3400

Fax: + 852 2810 6192

Email: [email protected]

[email protected]

Contact: Robert Ashworth, Teresa Ko

Page 18: Guide to mergers & acquisitions in Asia (May 2004)

Guide to mergers and acquisitions in Asia16

Indonesia

1 Are there any restrictions on foreign ownership of shares?

The purchase of shares of Indonesian companies by foreign parties remains subject to many

administrative consents and limitations on foreign ownership. Certain areas are closed to foreign

investment altogether under the so-called ‘Negative List’ of capital investment, most recently set

forth in Presidential Decree No 96 of 2000 as amended by Presidential Decree No 118 of 2000,

which contains a reduced number of activities. In general, any area not listed therein is open to

foreign and domestic investment. Certain key segments of the economy remain the domain of

Indonesia’s many state-owned entities, and applicable industry-specific laws may require any

permitted foreign investment in such areas to be in various forms of joint operation or cooperation

with such entities. Pursuant to regulations enacted in 1998, retail and wholesale trading are now

substantially open to foreign investment upon application for the required authorisations.

In the finance sector, the maximum foreign ownership allowed is 85 per cent of unlisted companies

and 100 per cent of listed companies, up previously from 49 per cent. Exceptions are unlisted

insurance and securities companies and listed banks. Foreigners may own a maximum of 80 per cent

only of an unlisted insurance company. For securities companies, foreign entities engaged in finance

services other than securities trading may own a maximum of 85 per cent of an unlisted securities

company. If the foreign entity is a securities company, it may own up to a maximum of 99 per cent of

an unlisted securities company. The government allows a maximum of 99 per cent foreign ownership

in the shares of a listed bank. Banks and securities companies may only list on the stock exchange

99 per cent of their issued shares, and foreign investors are allowed to own up to 100 per cent of the

total listed shares. Under previous laws, maximum foreign ownership of publicly listed general

commercial banks and joint venture banks was limited to 49 per cent and 85 per cent, respectively.

Foreign investment in banks is now regulated by regulations issued pursuant to the banking law, Law

No 10 of 1998, which also relaxed the prevailing bank secrecy restrictions and transferred licensing

authority from the Ministry of Finance (MOF) to the Bank Indonesia (BI), the central bank.

Mochtar, Karuwin & Komar

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Mochtar, Karuwin & Komar • Indonesia

Guide to mergers and acquisitions in Asia 17

The government has enacted a new Oil and Gas Law, Law No. 22 of 2001, which has been

effective as of 23 November 2001. The basic purpose of the new Oil and Gas Law is to create an

overall statutory framework for a fundamental restructuring of the oil and gas regime. This is

principally an ending to the Pertamina (which is a state-owned enterprise) monopoly in upstream oil

and gas and liberalisation of the domestic oil and gas markets.

Under this new law, the oil and gas activities are divided into two main categories, ie upstream and

downstream activities. Upstream activities consist of exploration and exploitation, while

downstream activities encompass processing, transporting, storage and commerce.

Foreign investment in upstream oil and gas is carried out through production sharing contracts or

other forms of cooperation contracts with the designated government entity. As also permitted

under the preceeding law (the 1960 Oil and Gas Law), foreign legal entities through their permanent

establishments are permitted to engage in upstream activities pursuant to such contracts without

the obligation to form an Indonesian legal entity.

Downstream oil and gas is in principle open for direct foreign investment. However, the regulation

framework is still to be established. As to oil and gas supporting services (specialised services), in

the past foreign companies were permitted to operate in Indonesia through a branch operation, but

then over the years the government gradually encouraged them to convert their operations to an

Indonesian limited liability company (PMA company). Branch operations are still permitted, but

these would be limited to certain categories of highly specialised services.

Foreign investment in most other areas of the Indonesian economy is conducted through PMA

companies established under the Foreign Investment Law, Law No 1 of 1967, as amended (the FIL).

These PMA companies are entitled to certain government facilities discussed below. In the

economic sectors open to foreign PMA company investment, 100 per cent foreign share ownership

is permitted by law, except for a number of key infrastructure areas where foreign ownership is

limited to 95 per cent.

2 What is the relevant legislation relating to foreign ownership and who enforces it?

There are no special regulatory bodies in Indonesia responsible for regulating merger and

acquisition activity by foreign investors as such. Several government bodies responsible for

regulating particular business sectors have the power to regulate mergers and acquisitions within

those sectors, which for these purposes can be broadly divided into:

(i) finance, meaning commercial banking, securities, non-bank finance and insurance;

(ii) oil and gas; and

(iii) any sector other than finance and oil and gas; each of which is subject to a different regulatory regime.

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Indonesia • Mochtar, Karuwin & Komar

Guide to mergers and acquisitions in Asia18

The most important of these regulatory bodies is the Capital Investment Co-ordinating Board

(BKPM), the entity responsible for licensing foreign investment in most sectors of the Indonesian

economy, other than finance and oil and gas. The BKPM is a non-departmental government

institution in that its authority is mainly derived from the authority of the technical ministry that has

jurisdiction over the particular economic sector at issue. Foreign investment in the finance sector is

regulated by the MOF (except for securities companies, which are regulated by the Capital Market

Supervisory Agency (BAPEPAM)), in the case of banks and venture capital firms it is regulated by

BI and in the oil and gas sector by the Ministry of Energy and Mineral Resources (MEMR), the

Upstream Operating Board (BP-Migas), the Downstream Regulatory Board (BPH-Migas) and

BKPM (for a PMA company).

The primary legislation governing mergers and acquisitions is the Company Law, Law No 1 of 1995

(the Company Law) and its implementing regulations, particularly Government Regulation No 27 of

1998 (GR27/1998) concerning mergers, acquisitions and consolidations. The Company Law

applies to all locally incorporated limited liability (Perseroan Terbatas or PT) companies generally,

listed and private, regardless of the economic sector in which they operate, and is policed by the

Ministry of Justice and Human Rights (MOJHR). Most private sector business activity in Indonesia

is conducted through PTs, and in many fields of business activity forming a PT is a government

requirement. Indonesian partnerships are rare and are not available to foreign investors.

Except in the finance and oil and gas sectors, where industry-specific laws and their implementing

regulations provide the main source of regulation of foreign investment, the basic law applicable to

foreign investment generally is the FIL and its various implementing regulations. Mergers and

acquisitions of publicly listed companies are regulated primarily by BAPEPAM, which is under the

jurisdiction of the MOF and is responsible for stock market regulation and investor protection,

pursuant to the Capital Markets Law, Law No 8 of 1995 (the Capital Markets Law) and its

implementing regulations. Purchases of listed shares may be conducted through the stock exchange

(Jakarta or Surabaya), where the shares are listed, or outside the stock exchange, and if conducted

through the stock exchange are also subject to the rules of the stock exchange authorities.

3 What approvals are needed and how long does it take to obtain them?

Acquisitions of shares in a securities company require the consent of BAPEPAM. In addition, a

purchase by a foreign party of shares in a wholly Indonesian-owned company in the finance sector

generally triggers a higher level of required share capitalisation under the business licence

regulations. Post-acquisition reporting requirements also exist. Foreign investment in those segments

of the oil and gas sector open to foreign investment generally requires the approval of the MEMR.

With respect to the remainder of the economy subject to the FIL, the purchase by foreign parties

of shares in unlisted non-PMA companies (which will also require such companies to be converted

Page 21: Guide to mergers & acquisitions in Asia (May 2004)

to PMA companies) and the merger between unlisted companies where any foreign share

ownership is involved require BKPM approval, as does any transfer of shares in PMA companies or

any dilution of an Indonesian shareholding in a joint venture PMA company engaged in certain

infrastructure areas, whether by share transfer or increase in share capital.

Additionally, foreign acquisitions of unlisted companies in various sectors may also require the

approval of the applicable technical ministry, which together with BKPM may take steps to protect

existing shareholders, including limiting share purchases by, or imposing other conditions on, the

buyer. Speaking generally, the liberal foreign shareholding permitted by the aforementioned

regulations has historically been coloured by the exercise of administrative policy discretion, which

may operate to limit foreign investment in individual cases to some lesser percentage. Additionally,

various ancillary consents and permits will be required from functional ministries to implement the

approved acquisition. Acquisitions of shares or other assets from shareholders of banks taken over

by the Indonesian Bank Restructuring Agency (IBRA) may require the IBRA’s consent.

Pursuant to the Company Law, any issuance of new shares of a PT company will require the

approval of the general meeting of shareholders (GMS), as will the sale of all or a majority part of

the assets of a company. In order for a PT company to issue new shares to other parties, the PT

company must first conduct a rights offering to its existing shareholders proportionately. The PT

company must then offer some number of shares that were not taken up to the employees of the

PT company. This requirement is presently not yet effective unless contained in the PT company’s

articles of association and is to be addressed by future regulation. Acquisitions of assets also

require approval of the BKPM if any government import or tax facilities attach to the assets.

Under the Company Law and GR27/1998, a merger, acquisition or consolidation can only be

carried out to further the interests of the companies concerned and those of their shareholders and

employees, and to enhance the public interest. A formal proposal for a merger, consolidation or

acquisition, as the case may be, must be prepared and obtain approval of at least 75 per cent of

the votes cast at the GMSs of the companies concerned. Such GMSs must be attended by at least

75 per cent of the total voting shares. These voting requirements may be subject to any higher

voting requirement in the companies’ articles of association. The proposal must state, inter alia, the

reasons for and terms and conditions of the transaction, the procedure for converting the shares of

each company into shares of the surviving company and the treatment of employees and dissenting

shareholders. There are various publication and notice requirements, including the requirement to

give creditors 30 days’ notice prior to the notice of the GMS. Any unresolved objection by creditors

will block the transaction. These acquisition procedures are not intended to apply to normal share

transfers directly from a shareholder to a third party, even where a majority interest is transferred,

but rather to takeovers, mergers and other acquisitions of control instigated by management.

Mochtar, Karuwin & Komar • Indonesia

Guide to mergers and acquisitions in Asia 19

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Indonesia • Mochtar, Karuwin & Komar

Guide to mergers and acquisitions in Asia20

As noted above, mergers and acquisitions of listed and unlisted companies must take into account

the interests of employees and their intended treatment must be disclosed in the required

transaction documentation. As to any staff reductions following an acquisition, dismissal of more

than 10 employees in any calendar month requires prior approval from the Central Committee for

Settlement of Labour Disputes, or ‘P4P’, an independent administrative court under the political

authority of the Ministry of Manpower and Transmigration, which will often seek to negotiate

adjustments to the acquiror’s redundancy programme.

As a general matter, and subject to certain exceptions, such as in the case of BKPM approval,

applicable regulations do not require any administrative bodies whose consent must be obtained to

render their approval within any time periods, which can vary in practice.

4 Are there any exchange control laws or restrictions on the repatriation of profits?

No such restrictions exist. The Government by virtue of Law No 24 of 1999 regulates a foreign

exchange management regime. However, Law No 24 of 1999 does not stipulate restrictions on

repatriation of profits.

Note, however, cross border remittances of rupiah funds are prohibited. There are reporting

requirements on foreign exchange transactions carried out by or through a bank or non-bank

financial institution by the relevant bank or non-bank financial institution.

There are also periodic reporting requirements on transactions by companies which meet certain

asset or annual revenue thresholds, which are not conducted through onshore banks or non-bank

financial institution, but through overseas accounts, inter-company or office accounts, and other

means, affecting offshore financial assets and/or offshore financial obligations, and periodic

reporting of offshore asset and financial obligation positions of a company. Companies subject to

these reporting requirements are those having total assets of at least IDR100 billion (Indonesian

rupiah), or total annual gross revenues of at least IDR100 billion. This also applies to Indonesian

permanent establishments of foreign companies.

We note that foreign PMA investors receive government assurances that if foreign exchange

controls are adopted, the foreign investors will have access to foreign exchange made available by

the Government on a pari passu basis with all other foreign investors similarly situated for

repatriation of invested equity capital, repayment of offshore debt up to the limits approved in the

investment licence issued by BKPM, and for certain other approved transfers. The government

does not, however, guarantee that it will make sufficient foreign exchange available to cover any of

such transfers, and the implementation of this guarantee is untested in practice.

Page 23: Guide to mergers & acquisitions in Asia (May 2004)

5 What rules govern takeovers or mergers of listed companies and who enforces them?

Non-PMA companies which acquire foreign ownership must convert to PMA status. Mergers or

amalgamations of listed companies are addressed by the Company Law provisions noted above

requiring GMS approval, and by the Capital Markets Law and BAPEPAM Regulation No IX.G.1

attached to BAPEPAM Decree No 52 of 1997 which require submission of a plan of merger or

amalgamation to BAPEPAM for its approval, disclosing the purpose of the combination, the terms

of the transaction, including the share conversion procedures and the treatment of dissenting

minority shareholders and employees of the companies involved, whose interests must be taken

into account pursuant to applicable law. Here again, there are notice and publication requirements.

The proposed merger or amalgamation must also follow the applicable stock exchange rules.

Acquisitions of listed companies are addressed by the Company Law provisions noted above

requiring GMS approval and by BAPEPAM Regulation No IX.H.1 attached to BAPEPAM Decree No

5 of 2002 which requires the acquiring party to make a tender offer if the acquisition transaction will

result in a change of the controlling party. A controlling party is defined in Regulation No IX.H.1 as

a party owning 25 per cent or more of the issued shares of a listed company, unless such party can

otherwise prove it does not have control; or the ability to, directly or indirectly, control a listed

company by way of influencing the appointment and dismissal of a director or commissioner, or by

way of amending the articles of association of the listed company. The tender offer, if applicable,

shall be made in accordance with the procedures as set forth in BAPEPAM Regulation No IX.F.1

attached to BAPEPAM Decree No 4 of 2002 pursuant to which a tender offer plan must be

prepared and published and must disclose, among other things, the terms and conditions of the

tender offer and the number of shares of the target company held by the tender offeror. The text of

the announcement and thereafter a tender offer statement must be submitted to BAPEPAM, the

stock exchange authorities and other parties, and must be publicly published. Technical ministry

approval of foreign acquisitions of listed shares is generally not required, although exceptions exist.

The pre-emptive rights granted to shareholders and employees by the Company Law as noted

above are qualified in the case of listed companies by BAPEPAM regulations which provide that in

certain circumstances, where the company is in financial distress, or outstanding debt is to be

converted into equity, no rights offering is required.

6 What is the level for disclosure of shareholding? Does a memorandum of understanding relating to the

acquisition of shares need to be disclosed?

A director, commissioner or any party owning 5 per cent of the total issued shares of a listed

company is obliged to report to BAPEPAM and the stock exchange authorities its shareholding and

any subsequent change in its shareholding (in the shares). BAPEPAM also requires an insider of a

listed company and any party making a transaction in shares with an insider to report to BAPEPAM

Mochtar, Karuwin & Komar • Indonesia

Guide to mergers and acquisitions in Asia 21

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Indonesia • Mochtar, Karuwin & Komar

Guide to mergers and acquisitions in Asia22

the transaction. In addition, a listed issuer or the share administration bureau holding the issuer’s

share register must periodically report to BAPEPAM a party with ownership of 5 per cent of the

equity of a company. Additionally, an issuer and a public company must report to BAPEPAM any

‘material and important’ information which could affect the shares, including a change of control.

Such reporting obligation could theoretically require the disclosure of a memorandum of

understanding relating to a share acquisition, although if the document is non-binding or subject to

material conditions precedent, no disclosure should be required.

7 Are there any rules restricting the acquisition of shares in a listed company?

These are addressed in paragraph 5 above.

8 What are the key conditions attaching to a takeover offer?

These are addressed in paragraph 5 above.

9 Is there a level at which a mandatory general offer is required? What are the consequences of reaching it?

These are addressed in paragraph 5 above.

10 Are there any provisions which establish a minimum price for a takeover offer?

The Capital Market Law recognises two types of companies subject to the Capital Market Law, ie

(i) an Issuer, defined as a company which offers its shares through an Initial Public Offering process

and subsequently listed on the stock exchange; and (ii) a Public Company, defined as a company

having 300 or more shareholders with issued capital of at least IDR3 billion but does not list any

shares on the stock exchange.

Regulation No IX.H.1 deals with takeovers of Issuers and Public Companies. As addressed in

paragraph 5 above, if a party intends to acquire a controlling stake (ie by way of purchasing 25 per

cent or more of the issued shares or equity securities of a listed company), then the party is required

to make a tender offer for the remaining shares owned by the non-controlling shareholders. As a

general rule, pursuant to BAPEPAM Regulation No IX.F.1, the minimum tender offer price is the greater

of the highest tender offer price made in the previous 180 days, or the highest trading price over the

previous 90 days. A number of exceptions to the general rule are provided in BAPEPAM Regulation

No IX.H.1. First, if the takeover offer is made directly in respect of shares of a Public Company that

are not listed or traded on any stock exchange, the offer price should at least be the same as the price

the buyer paid to the “selling shareholder” in the direct sale transaction (Acquisition Price), or a fair

price determined by an independent appraiser, whichever is greater. Second, if the takeover offer is

made directly in respect of shares of the target company that are listed and traded on a stock

exchange but have not been traded for the last 90 days or trading has been temporarily suspended,

the offer price shall be at least the greater of the highest trading price over the past 12 months or the

Page 25: Guide to mergers & acquisitions in Asia (May 2004)

Acquisition Price. Third, if the takeover offer is made directly in respect of shares of the target company

that are listed and traded on an exchange, the price of the Tender Offer is to be the greater of the

highest traded share price over the past 90 days or the Acquisition Price.

Other exceptions are in the event the takeover is made indirectly. First, if the takeover is made indirectly

in respect of shares of the target company that are listed and traded on exchanges but within 90 days

have been temporarily suspended, the price of the Tender Offer is to be the highest traded share price

over the past 12 months. Second, if the takeover is indirectly in respect of shares of the target

company that are listed and traded on an exchange, the price of the Tender Offer is to be at least the

same as the highest traded share price over the past 90 days.

Beyond the tender offer context, purchases of listed shares can be conducted by way of a direct

negotiation between the seller and buyer through the negotiation market, where the continuous

auction system applicable to regular trading does not apply. The price is to be determined by the

seller and the buyer, taking into account the closing price on the regular auction market. Although

no regulation imposes a maximum deviation from the market price for a direct negotiation

transaction (except for transactions done through one broker), substantial deviation may be

scrutinised by BAPEPAM and the stock exchange authorities.

11 Does a 75 per cent shareholder achieve effective control? If not, why not?

Applicable capital market regulations broadly define control as the ability to decide, directly or indirectly,

by any means, the management policy of the company and ownership of 25 per cent or more of the

listed shares is deemed to constitute control. Beyond this, and except where the law mandates GMS

approval of a specific percentage for certain corporate actions, no provisions of Indonesian law confer

statutory control on shareholders holding any particular minimum percentage of shares.

12 Can a purchaser compulsorily acquire or squeeze out a minority?

No. On the contrary, the Company Law explicitly grants a number of protections to the minority

shareholder, including the right to require the company to purchase his shares at a fair price, if the

shareholder does not approve of any sale or exchange of all, or a majority part, of the company’s

assets, or the merger or acquisition of the company. The Company Law also gives minority

shareholders holding at least 10 per cent of the shares of a company a number of other statutory rights.

Additionally, in the case of listed companies, where a conflict of interest in a transaction exists, the

consent of a majority of the independent (disinterested) shareholders will be required for the proposed

transaction.

13 What is the takeover timetable for achieving full control?

Not applicable.

Mochtar, Karuwin & Komar • Indonesia

Guide to mergers and acquisitions in Asia 23

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Indonesia • Mochtar, Karuwin & Komar

Guide to mergers and acquisitions in Asia24

14 What alternatives are there for achieving control, eg scheme of arrangement with shareholders?

Aside from the direct acquisition of shares or assets and the modification of the control provisions

of the organisational documents of the acquired entity, various other means have been used by

foreign parties to achieve de facto control of Indonesian companies. Principal among these are

the use of nominee shareholder arrangements and technical assistance or similar agreements,

together with the secondment of foreign managerial personnel, with the control provisions

established by contract. Both present significant legal problems.

15 What is needed to delist a company?

Under the stock exchange regulations, a listed company may apply for a voluntary delisting, upon

obtaining approval from the GMS. The Jakarta Stock Exchange requires approval from at least

two-thirds of the non-controlling shareholders. While the Surabaya Stock exchange requires

approval from only one half of the non-controlling shareholders. The stock exchange authorities

can also delist a company for a number of reasons, including adjudication of bankruptcy,

violations of law, trading inactivity and incurring business loss for specified periods. Additionally,

BAPEPAM may freeze or cancel the registration of any security should events occur which

endanger the interest of investors, or prevent normal exchange transactions for that security.

In response to the fact that many listed companies met the criteria for delisting, in the year 2000

the Jakarta stock exchange authorities created a second-tier board to accommodate companies

which did not meet the then applicable listing criteria.

16 Are there any anti-competition or monopoly laws?

Law No 5 of 1999 on the Prohibition of Monopoly Practices and Unfair Business Competition,

which became effective 5 March 2000, prohibits various anti-competitive activities, including price

fixing, cartels, boycotts, monopolisation, anti-competitive mergers and acquisitions, and various

other anti-competitive exercises of market power. The law also restricts the ability of parties to

control a dominant market position in a relevant market. Various arrangements are exempted

from the law. This anti-monopoly law is administered by an independent Business Competition

Supervisory Commission which reports to the President directly.

17 What stamp duties or other taxes apply to a transfer of shares?

The payment of nominal stamp duties (at present IDR6,000 per document) is necessary in order

for any document, including share transfer documents, to be enforced in Indonesia.

Indonesian companies are subject to corporate tax on income from all sources, including capital

gains arising from a transfer of shares or assets. Special rules apply to capital gains arising from

Page 27: Guide to mergers & acquisitions in Asia (May 2004)

a sale of publicly listed and non-publicly listed shares, and also to companies in the energy and

mining industries, and various other industries. The top marginal corporate tax rate is 30 per cent

while the personal tax rate is currently 35 per cent.

Dividends paid to shareholders are normally subject to withholding tax for individual Indonesian

residents and non-residents of 15 per cent and 20 per cent, respectively, subject to reduction

pursuant to most double tax treaties to 15 per cent or 10 per cent. Dividends paid to PT company

shareholders are not subject to withholding tax.

In response to the economic crisis, the government has promulgated or is in the process of

promulgating a great number of new laws and regulations, some of which are noted above,

evidencing a general trend to further open up the economy to foreign investment. The government

has also taken a number of measures to attack the corporate debt overhang which may clear the

way for corporate acquisitions, including the establishment of the ‘Jakarta Initiative’ set of voluntary

rules to facilitate out-of-court debt restructuring under the auspices of an interdepartmental team.

Furthermore, the government is continuing to privatise a number of state-owned companies and,

through BI and IBRA, has completed the consolidation of state-owned banks and is continuing with

a program to sell down the government’s interest in a number of banks that it has taken over

through IPOs as well as private placements.

Mochtar, Karuwin & Komar

14th Floor

Wisma Metropolitan II

Jalan Jenderal Sudirman Kav 31

Jakarta 12920

Indonesia

Website: www.mkklaw.net

Tel: + 62 21 571 1130

Fax: + 62 21 571 1162

+ 62 21 570 1686

Email: [email protected]

[email protected]

[email protected]

Contacts: Emir Kusumaatmadja, Miranti M Ramadhani, Carmen B Soedarmawan

Mailing address: PO Box 2844, Jakarta 10001, Indonesia

Mochtar, Karuwin & Komar • Indonesia

Guide to mergers and acquisitions in Asia 25

Page 28: Guide to mergers & acquisitions in Asia (May 2004)

26 Guide to mergers and acquisitions in Asia

Japan

1 Are there any restrictions on foreign ownership of shares?

There is no general restriction on foreign ownership of shares. However, there are some industry-

specific restrictions as described in section 2 below.

2 What is the relevant legislation relating to foreign ownership and who enforces it?

The Foreign Exchange Law – restrictions on investment

The Foreign Exchange and Foreign Trade Law (Foreign Exchange Law), the primary legislation

controlling foreign investment in Japan, was amended in 1992 to substantially liberalise foreign

investments. Enforced by the Ministry of Finance, the law requires that any investment classified

as an inward direct investment be followed 15 days after the acquisition by a report to the Bank

of Japan filed by the investor. Inward direct investment is defined to include any acquisition of

shares in a closely-held corporation or an acquisition of more than 10 per cent of a publicly listed

company’s outstanding shares.

Prior notification requirements for inward direct investment, however, still apply to investments from

certain countries (eg Iraq and North Korea) or to investments in certain industries including those in

Table 1 (overleaf).

For these types of investments, the investor must not complete the transaction until 30 days after the

Ministry of Finance and the Minister in charge of the competent supervising government office (the

Ministers) receive notification. The Ministers may reduce the period, or extend it to up to four months.

Where appropriate, the Ministers may announce during the waiting period a prohibition on, or

conditions to, the proposed investment.

Freshfields Law Office

Freshfields Foreign Law Office

Page 29: Guide to mergers & acquisitions in Asia (May 2004)

Freshfields Law Office/Freshfields Foreign Law Office • Japan

Guide to mergers and acquisitions in Asia 27

Industry Competent supervising government office

Aircraft manufacturing Ministry of Economy, Trade and Industry

Atomic power

Explosives manufacturing

Leather products manufacturing

Space development

Weaponry manufacturing

Agricultural, forestry and fishery Ministry of Agriculture, Forestry and Fisheries

Public transportation Ministry of Land, Infrastructure and Transport

Supply of electricity, gas and heating

Type I Telecommunications and Broadcasting Ministry of Public Management, Home Affairs, Posts

and Telecommunications

Vaccine production Ministry of Health, Labour and Welfare

Private security services National Police Agency

Air transportation Ministry of Land, Infrastructure and Transport

Water transportation

Restrictions on foreign ownership

Levels of foreign ownership in companies in some government regulated industries are limited by

law. For telecommunications companies, all such restrictions have been lifted, with the exception

of NTT, the national telephone company, which must be less than one-third foreign owned.

Additionally, domestic airline companies and their holding companies must be less than one-third

foreign owned. Finally, in principle, there are restrictions to the foreign ownership of broadcasting

enterprises. Such enterprises must be less than one-third or one-fifth foreign owned, depending on

the type of business they are engaged in. It is therefore advisable to seek legal advice before

investing in a company that operates in such an industry.

In these industries (ie NTT, television and radio broadcasting and domestic airlines), a person who

is not a Japanese national cannot be appointed as a representative of a company.

3 What approvals are needed and how long does it take to obtain them?

Please refer to section 2 above.

4 Are there any exchange control laws or restrictions on the repatriation of profits?

The Minister of Finance may prohibit, in very limited circumstances, the transfer of money overseas.

Generally, however, there is no restriction on the repatriation of profits, other than the procedures

designed to prohibit money laundering, which include the identification of the parties to be paid.

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Japan • Freshfields Law Office/Freshfields Foreign Law Office

Guide to mergers and acquisitions in Asia28

5 What rules govern takeovers of mergers of listed companies and who enforces them?

In addition to the Foreign Exchange Law discussed above in section 2, the Commercial Code,

Securities and Exchange Law and the Anti-Monopoly Law all govern takeovers and mergers in

Japan. The Financial Services Agency (FSA) enforces the Securities and Exchange Law with

respect to takeovers, while the Fair Trade Commission (FTC) applies the Anti-Monopoly Law with

respect to mergers. In addition, the Tokyo Stock Exchange enforces its own regulations. For details,

see section 8 for takeovers and section 16 for mergers.

6 What is the level for disclosure of shareholdings? Does a memorandum of understanding relating to the

acquisition of shares need to be disclosed?

The Securities and Exchange Law requires a shareholder to report to the Minister of Finance within

five days after its (and its related parties) combined shareholdings in a listed company exceed

5 per cent or there is any subsequent movement in its shareholding or 1 per cent or more. If the

combined holdings of shareholders who have agreed to vote as a block exceed 5 per cent, the

same obligations are triggered. A report is required not only where shares are acquired, but also

where a person enters into an agreement or arrangement to acquire shares. The report must

include the principal terms of the agreement or arrangement. In certain circumstances, therefore,

the existence and major terms of any memorandum of understanding between the buyer and the

seller may also be required to be disclosed.

In addition, every publicly listed company must disclose its 10 largest shareholders.

7 Are there any rules restricting the acquisition of shares in a listed company?

There are no general restrictions on the acquisition of shares in a listed company through the stock

market. Banks, however, may not own more than 5 per cent of another company, and insurance

companies may not own more than 10 per cent. Listed shares may only be acquired outside a

stock exchange subject to tender offer rules contained in the Securities and Exchange Law.

8 What are the key conditions attaching to a takeover offer?

Any acquisition of more than 5 per cent of a publicly held company’s shares that occurs outside the

stock market must comply with the tender offer rules below. Excepted from these rules are

acquisitions that would result in ownership of no more than one-third of a company’s shares and

which are made from not more than 10 sellers within a 60-day period.

A tender offer is an offer to the general public, made by public notice, to acquire shares in a company

outside the stock market or over-the-counter market and must be subject to the following conditions:

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(a) the purchase price must be uniform in relation to all shares to be purchased;

(b) any change made to the original terms of the offer must be to the advantage of the

shareholder;

(c) a shareholder is entitled to cancel an agreement to sell shares at any time during the offer

period without penalty; and

(d) the offer may be conditional upon the offeror acquiring more than a certain number of shares,

or the offeror may limit the number of shares to be acquired. If the number of shareholders

accepting the offer exceeds the limit placed on the offer, then the offeror must purchase the

shares on a pro rata basis from each accepting shareholder.

9 Is there a level at which a mandatory general offer is required? What are the consequences of reaching it?

There is no level at which a mandatory general offer is required. However, if a purchaser wishes to

acquire at one time a holding from a specified group of sellers which triggers a requirement for a

tender offer, in practice it may be necessary to acquire the whole company since the accepting

shareholders would be entitled to participate in the offer on a pro rata basis.

10 Are there any provisions which establish a minimum price for a takeover offer?

If a tender offer is required, the price must be no less than the highest price paid outside of the

market in the last 60 days. Otherwise, there are no minimum price requirements.

11 Does a 75 per cent shareholder achieve effective control? If not, why not?

Yes, in fact a holder of two-thirds of the aggregate outstanding shares in a company will achieve

effective control since a two-thirds majority in a general shareholders’ meeting is sufficient to amend

the Articles of Incorporation, remove directors, transfer all or a major part of the business, dissolve

the company and approve a merger. However, there are a limited number of matters that require

approval from more than two-thirds of the shareholders, such as the conversion of equity from one

class of stock to another and the discharge of a director’s liability to the company.

12 Can a purchaser compulsorily acquire or squeeze out a minority?

No. However, if commercially justified and subject to the directors’ fiduciary duties, this may be

effected by transferring the business of the target company to another company, thereby leaving

the target shareholders with a company stripped of its assets.

In addition, recent regulatory changes now allow several methods by which a company can

squeeze out minority shareholders under certain circumstances. For example, stock-for-stock

exchanges allow a company to effectively squeeze out dissenting shareholders. The dissenting

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Guide to mergers and acquisitions in Asia 29

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Japan • Freshfields Law Office/Freshfields Foreign Law Office

Guide to mergers and acquisitions in Asia30

shareholders’ stock is exchanged for stock in the purchasing company, giving the purchasing

company 100 per cent ownership of the target company and the dissenting shareholders a minority

stake in the purchasing company.

13 What is the takeover timetable for achieving full control?

First, it must be noted that a tender offer under Japanese law does not necessarily achieve full

control since dissenting shareholders cannot be forced to give up their shares. The timetable for the

tender offer process is as follows:

(a) The offeror begins the offer process by placing a public notice of the offer in at least two

newspapers or more. The offeror must file a takeover bid statement and basic financial

information about itself with the appropriate local finance bureau and deliver copies to the

target company and the relevant stock exchange.

(b) The offer must be open for acceptance by shareholders for a given period of between 20 and

60 days (the Offer Period).

(c) Detailed terms of the offer are sent to target shareholders who express an interest in selling.

The offeror may modify the terms of the offer, including the price, subject to the same

requirements as described in (a) above. Shareholders who have accepted an offer are entitled

to the benefit of any improved terms.

(d) The target company, or a director thereof, may announce its opinion on the offer during the

Offer Period. A report must be filed with the appropriate local finance bureau and copies must

be delivered to the offeror and the relevant stock exchange.

(e) After the expiry of the Offer Period, no further acceptances of the offer are permitted.

(f) On the day after expiry of the Offer Period, the offeror places a public notice of the results of

the offer in a newspaper. The offeror files a report with the appropriate local finance bureau,

with copies to the target company and the relevant stock exchange.

(g) All administration in relation to the offer must be completed without delay (the end of the

offer process).

14 What alternatives are there for achieving control, eg scheme of arrangement with shareholders?

An amalgamation (Gappei) is an alternative to an acquisition of shares. There are two types of

Gappei under Japanese Law: merger (Kyushu Gappei) and consolidation (Shinsetsu Gappei). In

either case, the parties must execute an amalgamation agreement and have it approved at their

respective general meetings and their class’s shareholders’ meetings, if applicable, by a two-thirds

majority. The corporate identity of one party survives and the corporate identity of the other party is

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extinguished in the case of a merger. The corporate identity of both parties will be extinguished and

a new company will be formed in the case of a consolidation. The shareholders of the company

that has been extinguished in an amalgamation are entitled to shares in the amalgamated company,

or the new company, as the case may be, together, in some cases, with a cash payment. A

shareholder who objects to the proposed amalgamation may request the company to purchase his

shares at a fair price.

Another alternative for gaining control is through a business transfer. The parties must have the

business transfer approved at their respective general meetings by a two-thirds majority.

New provisions of the Commercial Code facilitating demergers (kaisha bunkatsu) became effective

on 1 April 2001. These streamlined the legal procedures which companies seeking to restructure

through demergers must follow. Under this new law, the recipient of a spun-off business must be

either a new corporation or an existing corporation, and the recipient of the newly-issued shares

must be either the transferor corporation (split-up) or the shareholders of the transferor corporation

(spin-off). In the split-up process, a shareholding relationship occurs between a demerged company

and a recipient company, thus this can also be used as an alternative.

15 What is needed in order to delist a company?

There are many factors that can lead to the delisting of a company from Japan’s principal stock

exchanges. Although the factors are generally similar among the different exchanges, each

exchange has its own rules and may, in particular, set different numerical thresholds for the

events triggering a delisting. For example, a company may be delisted from the Tokyo Stock

Exchange (inter alia) if:

(a) the average monthly trading volume is less than 10 shares or 10 units of shares, if applicable;

(b) there has not been a sale for three consecutive months;

(c) the company’s liabilities have exceeded its assets for more than one year;

(d) 75 per cent or more of the outstanding shares are held in aggregate by the 10 largest

shareholders, company officers (including their relatives) and affiliated companies;

(e) there are fewer than 4,000 shares, or 4,000 units of shares, if applicable;

(f) there are fewer than 400 shareholders and less than 10,000 shares, or 10,000 units of shares,

if applicable; or

(g) there are fewer than 600 shareholders and less than 20,000 shares, or 20,000 units of shares,

if applicable.

A company may also, with the approval of its board of directors, apply to be delisted.

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Guide to mergers and acquisitions in Asia 31

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Japan • Freshfields Law Office/Freshfields Foreign Law Office

Guide to mergers and acquisitions in Asia32

16 Are there any anti-competition or monopoly laws?

Substantive provisions

The Law Concerning Prohibition of Private Monopolies and Preservation of Fair Trade (the Act in this

section) regulates, among other matters, (i) an acquisition of shares; (ii) an acquisition of businesses;

and (iii) a merger or demerger, which would substantially reduce competition in a market in Japan.

These provisions used to apply only to Japanese companies or businesses operated in Japan.

Since 1999, the provisions also apply to foreign companies. The filing requirements in these

situations are explained below.

Reporting and prior notification requirements

A financial institution is, in general, restricted from holding more than 5 per cent (or 10 per cent for

insurance companies) of the shares in a Japanese company.

An acquiring company (other than a financial institution) is required to file with the FTC a report of

its shareholdings in an issuing company each time the shareholding level of the acquiring company

in the issuing company crosses the 10, 25 and 50 per cent thresholds. In each case this must be

done within 30 days of crossing the relevant levels. For these purposes, an acquiring company is

defined as a company (including a foreign company) that itself has total assets of more than

¥2 billion (Japanese yen) and, together with its subsidiaries and any Japanese parent, has total

consolidated assets of more than ¥10 billion. An issuing company is a Japanese company which

has total assets of more than ¥1 billion, or a foreign company which, in combination with its

subsidiaries, has aggregate sales in Japan (combined domestic sales) of more than ¥1 billion.

The Act also requires prior notification of an acquisition of a business or fixed assets to be filed with

the FTC where the transferee has consolidated total assets of more than ¥10 billion and,

(a) where the transferor is a Japanese company, either (i) the transferor has total assets of more

than ¥1 billion, in the case of a transfer of its whole business, or (ii) the transferred business

has sales of more than ¥1 billion or,

(b) where the transferor is a foreign company, the transferred business has combined domestic

sales of more than ¥1 billion.

An amalgamation of two Japanese companies requires prior notification when one has

consolidated total assets of more than ¥10 billion, and the other has consolidated total assets of

more than ¥1 billion. Prior notification is also required for an amalgamation of two foreign companies

when one has consolidated domestic sales of more than ¥10 billion and the other has consolidated

domestic sales of more than ¥1 billion.

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Prior notification is also required for certain types of demergers that result in the combination of

all/or part of two companies’ businesses. Such notification is required if the joint foundation

demerger or the acquisition demerger is conducted between:

(a) a company that has total assets of more than ¥10 billion (if its entire business is combined)

or has sales of more than ¥10 billion with respect to the combined business; and

(b) a company that has total assets of more than ¥1 billion (if its entire business is combined) or

has sales of more than ¥1 billion with respect to the combined business.

Business transfers also require prior notification when the transferee company has consolidated

total assets of more than ¥10 billion and the transferred business has sales of more than ¥1 billion

or, if the entire business is transferred, has total assets of more than ¥1 billion.

The FTC’s powers

Where prior notification is required, the parties must not complete the transfer of business,

amalgamation, or demerger within the 30-day period (or other period specified by the FTC) after the

filing. The FTC may announce its decision to prohibit or impose conditions on such transactions

only during this period. Where such transactions have been completed without the FTC’s

permission (even where it was only necessary to file a report after the acquisition), the FTC may

order the parties to restore competition in the relevant market through a divestment of all or a part

of the shares of the businesses or a demerger (although such orders are extremely rare).

17 What stamp duties or other taxes apply to a transfer of shares?

Japan levies no stamp duties on share transfers and the Securities Transaction Tax Act was

eliminated in April 1999, so there are no taxes that particularly apply to the transfer of shares.

However, capital gains are taxable just like any other corporate profits.

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Guide to mergers and acquisitions in Asia 33

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Japan • Freshfields Law Office/Freshfields Foreign Law Office

Guide to mergers and acquisitions in Asia34

Recent developments

Japanese M&A actively has increased in such areas as management buy-outs (MBOs), foreign

acquisitions of ailing Japanese companies and hostile takeovers. Japanese companies, often

backed by foreign private equity investors, have shown a strong preference for MBOs rather than

hostile takeovers. Foreign private equity funds have acquired failed banks, such as Lone Star’s

purchase of Tokyo Sowa Bank’s assets in 2001 and Ripplewood Holding’s acquisition of Long-Term

Credit Bank in 1999. In addition, there have been several high profile acquisitions of Japanese

companies by foreign companies. In 1999, Renault SA purchased more than one-third of Nissan

Motor Company to become the carmaker’s largest shareholder. Chiyoda Mutual Life Insurance was

purchased by AIG out of civil rehabilitation and resumed business in April 2001 as an AIG subsidiary.

Roche of Switzerland acquired a majority share in one of Japan’s leading drug companies, Chugai

Pharmaceutical, in October 2002.

Freshfields Law Office

Freshfields Foreign Law Office

Ark Mori Building

18th Floor

1-12-32 Akasaka Minato-ku

Tokyo 107-6018

Japan

Tel: + 81 3 3584 8500

Fax: + 81 3 3584 8501

Email: [email protected]

[email protected]

[email protected]

Contact: Naoki Kinami, Timothy Wilkins, Nobuo Nakata

Page 37: Guide to mergers & acquisitions in Asia (May 2004)

Guide to mergers and acquisitions in Asia 35

Malaysia

1 Are there any restrictions on foreign ownership of shares?

Two government bodies generally regulate foreign ownership of shares: the Foreign Investment

Committee (FIC) and the Malaysian Ministry of International Trade and Industry (MITI). MITI exercises

control by imposing equity conditions on licences granted to manufacturing companies, while the

FIC imposes equity conditions in the following circumstances:

(a) acquisitions of assets or interests exceeding MYR10 million (Malaysian ringgit); or

(b) acquisitions of 15 per cent or more of the voting power of a Malaysian company by a foreign

interest or associated group; or

(c) acquisitions by foreign interests in the aggregate of 30 per cent or more of the voting power

of a Malaysian company.

In addition, there are some publicly listed companies in Malaysia (PLCs), deemed to be of strategic

national interest, whose memorandum and articles of association contain provisions restricting the

level of foreign ownership in the PLC concerned.

On 31 May 2003, the Malaysian Government announced an economic stimulus package, which included

a liberalisation of the FIC Guidelines. On 17 June 2003, it announced its decision to fully liberalise equity

holdings in all manufacturing projects. Please refer to the section 18 for further details of the liberalisations.

2 What is the relevant legislation relating to foreign ownership and who enforces it?

The equity conditions imposed by the FIC are derived from a set of administrative guidelines known

as the ‘Guidelines for the Regulation of Acquisition of Assets, Mergers and Takeovers’ (FIC

Guidelines). MITI has the power, pursuant to Section 4(4) of the Industrial Co-ordination Act, 1975,

to impose any conditions when issuing a manufacturing licence and MITI has used this provision to

impose equity conditions on manufacturing licences.

Zaid Ibrahim & Co

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3 What approvals are needed and how long does it take to obtain them?

An application to the FIC or MITI generally takes up to three months for approval. When a PLC is

involved, a submission to the Securities Commission (SC) for approval may also be required.

Depending on the nature of the transaction, the approval process may take up to nine months.

4 Are there any exchange control laws or restrictions on the repatriation of profits?

Exchange control is governed by the Exchange Control Notices issued by Bank Negara, the central

bank of Malaysia under the Exchange Control Act, 1953.

Generally, a resident may pay any sum of money not exceeding MYR10,000, or its equivalent in foreign

currencies, to a non-resident for any purpose, other than for the import of goods and services. For the

repatriation of any sum above MYR10,000, or its equivalent in foreign currencies, compliance with

certain procedures and/or the prior written approval of Bank Negara is generally required.

All payments by non-residents for the purchase or subscription of Malaysian registered securities

must be made in foreign currency or in Malaysian ringgit from an external account (ie a ringgit

account maintained with a licensed financial institution) or by way of a share swap, which is subject

to the prior approval of the Controller of Foreign Exchange.

The Malaysian Government had in 1998 pegged the Malaysian ringgit at MYR3.80 to US$1.00. This

peg remains in force.

Foreign investors are freely allowed to repatriate their investments, including capital, profits,

dividends and interest, without being subject to any capital control levy. Where relevant, withholding

tax is still applicable on interest, royalties, fees payable for technical advice or assistance and rent

or other payments for the use of any movable property.

5 What rules govern takeovers or mergers of listed companies and who enforces them?

The Malaysian Code on Take-Overs and Mergers, 1998 (the Code), which came into operation on

1 January 1999, governs the takeovers and mergers of the following companies:

(a) PLCs;

(b) public companies; and

(c) private limited companies, with either shareholders’ funds or a paid-up capital of MYR10

million or more based on the latest audited accounts (on a consolidated basis, if applicable)

and a purchase consideration that is MYR20 million or more over a period of 12 months

before the date of written notice and announcement pursuant to the provisions of the Code.

The SC is currently the regulatory authority enforcing the rules.

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Guide to mergers and acquisitions in Asia36

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Takeovers and mergers of public companies, whether listed or not, are also governed by the

Securities Commission Act, 1993. Certain provisions of the Companies Act, 1965 (CA) may also be

relevant to takeovers and mergers of listed companies.

6 What is the level for disclosure of shareholdings? Does a memorandum of understanding relating to the

acquisition of shares need to be disclosed?

The CA imposes an obligation on a substantial shareholder of a PLC or a public company to give notice

in writing to the company and the Kuala Lumpur Stock Exchange (KLSE) of the full particulars of the

voting shares in the company in which he has an interest. A person has a substantial shareholding in a

company if he has a direct or indirect interest in the voting shares in a company amounting to not less

than 5 per cent of the aggregate of the nominal amounts of all the voting shares in the company.

The Registrar of Companies may at any time request information and particulars of any

shareholding in any company, including private limited companies, from any persons. In addition, all

substantial shareholders of a PLC are required to disclose their interests to the SC.

Generally, a memorandum of understanding executed by a PLC should be disclosed due to the

provisions of Chapter 9 of the KLSE Listing Requirements and the insider trading laws in Malaysia

pursuant to the Securities Industries Act, 1983, which advocate immediate disclosure of price

sensitive information, and the provisions governing public disclosure of material information as set

out in the KLSE Listing Requirements. A memorandum of understanding executed by a company

other than a PLC would not need to be disclosed to any authorities or to the public.

7 Are there any rules restricting the acquisition of shares in a listed company?

If there is a swap transaction, approval from the SC (and the KLSE, if there is an issue of new shares

in a PLC) is required. The approval of the FIC will be required for cash acquisitions of shares in a

PLC, where the acquisition is not carried out by stockbrokers through the KLSE. Approval may

contain equity conditions, which affect the party acquiring the shares.

8 What are the key conditions attaching to a takeover offer?

Pursuant to the Code, an offeror must include the following condition in the offer document: the

takeover offer shall be subject to the offeror having received acceptances which will result in the

offeror and all persons acting in concert with the offeror holding in aggregate more than 50 per cent

of the voting shares to which the takeover offer relates (the 50 per cent Condition).

In the case of mandatory offers, the offeror may not include any other condition without the prior

written approval of the SC.

Zaid Ibrahim & Co • Malaysia

Guide to mergers and acquisitions in Asia 37

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9 Is there a level at which a mandatory general offer is required? What are the consequences of reaching it?

Pursuant to the Code, a mandatory general offer is required under the following circumstances:

(a) when a person obtains control in a company (‘control’, in relation to the acquisition of shares, is

defined in the Securities Commission Act, 1993 to mean the acquisition or holding of, or entitlement

to exercise or control the exercise of, voting shares of more than 33 per cent in a company); or

(b) when a person holding more than 33 per cent but less than 50 per cent of the voting rights

of a company acquires additional shares carrying more than 2 per cent of the voting rights

during any six month period.

Total ownership of shares includes acquisitions by persons ‘acting in concert’, ie persons who,

pursuant to an agreement, arrangement or understanding (whether formal, written, express or

having legal or equitable force or otherwise), cooperate, to:

(a) acquire jointly or severally voting shares of a company for the purpose of obtaining control of

that company; or

(b) act jointly or severally for the purpose of exercising control over a company.

10 Are there any provisions which establish a minimum price for a takeover offer?

In accordance with the Code, a mandatory offer must generally be in cash at not less than the

highest price paid or agreed to be paid by the offeror, or persons acting in concert with it, within six

months prior to the beginning of the offer period for shares to which the takeover offer relates.

11 Does a 75 per cent shareholder achieve effective control? If not, why not?

A 75 per cent shareholder can be said to have achieved effective control over a company as he can

pass ordinary resolutions, as well as the special resolutions that are required for more important

matters, such as amendments to the company’s constitutional documents or a resolution to reduce

the capital of the company or to wind it up. Notwithstanding this, the provisions of the CA relating

to remedies in cases of oppression of minority shareholders must be noted.

12 Can a purchaser compulsorily acquire or squeeze out a minority?

A purchaser may compulsorily acquire or squeeze out a minority where an offer made to the holders

of all of the shares in a company is accepted by holders of not less than nine-tenths in nominal value

of those shares (other than shares already held at the date of the offer by, or by a nominee for, the

transferee company or its subsidiary) within four months of the making of the offer. In these cases,

the offeror may at any time within the two months after the offer has been approved give notice to

any dissenting shareholder that it wishes to acquire his shares. When that notice has been given

the offeror may acquire those shares.

Malaysia • Zaid Ibrahim & Co

Guide to mergers and acquisitions in Asia38

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Zaid Ibrahim & Co • Malaysia

Guide to mergers and acquisitions in Asia 39

13 What is the takeover timetable for achieving full control?

The takeover timetable for achieving full control pursuant to the provisions of the Code is as follows:

(a) A person who proposes to make a takeover offer must immediately announce the fact by a

press notice and notify the board of directors of the target company, the KLSE (if it involves

a PLC) and the SC (Date of Written Notice).

(b) Within four days after the Date of Written Notice, the offeror must submit the offer document

and other relevant information to the SC for its consent.

(c) The offer document should then be posted by the offeror to the board of directors of the offeree

and offeree’s shareholders within 35 days of the Date of Written Notice (Date of Posting).

(d) The offer must initially be open for at least 21 days after the Date of Posting and, if revised, it

must be kept open for at least 14 days from the date of posting to the shareholders a written

notification of the revision.

(e) The offer shall lapse if the 50 per cent Condition (refer to section 8 above) is not fulfilled by

5.00 pm on the 60th day from the Date of Posting (Expiry Date).

(f) Where an offer has become or is declared unconditional as to acceptances:

(i) before the 46th day from the Date of Posting, the offer must remain open for acceptance

for not less than 14 days, but no later than the 60th day from the Date of Posting; or

(ii) after the 46th day from the Date of Posting, the offer must remain open for acceptance

for not less than 14 days, but no later than the 74th day from the Date of Posting.

(g) Paragraph (f) above does not apply where the offeror has given at least 14 days’ notice in writing

to the offeree’s shareholders that the offer will not be open for acceptance beyond the Expiry Date.

14 What alternatives are there for achieving control, eg scheme of arrangement with shareholders?

For a PLC, there is generally no alternative method of achieving control. This is because a person

may be construed as acting in concert with existing shareholders if he enters into any agreement

with them, triggering the mandatory offer provisions discussed in section 9 above. Only in

exceptional circumstances would the government authorities allow some form of shareholders

agreement to subsist in a PLC.

For the takeover of a private limited company that does not fall within the Code, however, it may be

possible to have shareholders’ agreements, technical assistance agreements and consulting

agreements as alternative means of achieving effective control over the company.

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15 What is needed in order to delist a company?

Generally, the steps required would involve a substantial shareholder making a general offer for the

shares in the PLC and upon the completion of the general offer convening a shareholders’ meeting

resolving to delist the PLC. Once the resolution is approved an application is made to the relevant

authorities to delist the PLC.

In the case where the substantial shareholder concerned is interested in acquiring all the shares in

the PLC, the provisions of the CA dealing with compulsory acquisition (discussed in section 12

above) may be invoked to acquire the remaining minority interest.

16 Are there any anti-competition or monopoly laws?

There are no anti-competition or monopoly laws that are generally applied to all industries or services

in Malaysia. However, with the coming into force of the Communications and Multimedia Act 1998

(CMA), licensees under the CMA (including broadcasters, telecommunication companies and

internet access providers) are now subject to a form of anti-competition law, the scope of which

remains to be tested. Section 133 of the CMA states as follows: “A licensee shall not engage in any

conduct which has the purpose of substantially lessening competition in a communications market.”

17 What stamp duties or other taxes apply to a transfer of shares?

Stamp duty

The transfer of any shares in a company is subject to an ad valorem stamp duty of MYR0.30 for

every MYR100 or fractional part of MYR100 computed on the price or value of the sale as of the

date of the transfer of shares. A share sale agreement is subject to stamp duty of MYR10. Stamp

duties are payable by the purchaser of the shares.

Real property gains tax

The seller of shares in a company (other than a PLC) may sometimes be subject to real property

gains tax if there is a disposal of shares in a real property company, ie a company which fulfils the

following criteria:

(a) 75 per cent or more of its total tangible assets comprise real property and/or shares in

another real property company; and

(b) it has not more than 50 members and is controlled by not more than five persons.

The rate of tax ranges from 5 to 30 per cent depending on the length of time between the

acquisition and subsequent disposal of the shares. Please refer to the section 18 below for details

on the current exemption from real property gains tax.

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Guide to mergers and acquisitions in Asia40

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Zaid Ibrahim & Co • Malaysia

Guide to mergers and acquisitions in Asia 41

Recent developments

Economic stimulus package

The Malaysian Government announced on 21 May 2003 an economic stimulus package for the

Malaysian economy. The package focused on four main strategies and comprised 90 measures.

The four main strategies were:

(a) promoting private investment;

(b) strengthening Malaysia’s competitiveness;

(c) developing new sources of growth, so as to reduce Malaysia’s dependence on external

factors; and

(d) enhancing the effectiveness of the civil service delivery system in order to ensure expediency

and effective implementation of national development policies and strategies.

The following are some of the key measures announced in the package:

Liberalisation of foreign investment committee guidelines

For acquisitions by Malaysian or foreign interests of Malaysian companies (as opposed to landed

properties), the only equity condition imposed will be Bumiputera equity of at least 30 per cent. In

the case of acquisitions by foreign interests, the remaining equity can be held either by foreign

interests or jointly by foreign and Malaysian interests.

The threshold for acquisitions by foreign and Malaysian interests that are exempted from having to

obtain the FIC’s approval has been raised from MYR5 million to MYR10 million.

The processing of proposals for acquisitions of licensed manufacturing companies will be

centralised at MITI and at the SC for proposals from companies which require their approval. These

proposals will no longer require the FIC’s consideration.

Foreign interests will be allowed to acquire landed properties exceeding MYR150,000 per unit.

For acquisitions exceeding MYR100 million, companies can apply for exemptions from the FIC

Guidelines, subject to the approval of the Minister of Finance and on a case-by-case basis. This

exemption is given for applications received before 31 May 2004.

Income tax exemption to existing operational headquarters (OHQs)

An OHQ is a locally incorporated company that carries on a business in Malaysia, which provides

‘qualifying services’ to its offices or its related companies outside Malaysia. New OHQs established

after the 2003 Budget are given 100 per cent exemption from income tax for 10 years. All existing

OHQs will be given 100 per cent exemption from income tax for the remaining exemption period.

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Real property gains tax exemption

Real property gains tax will not be levied for a period of one year, effective from 1 June 2003 up to

31 May 2004. This exemption will be granted for sale and purchase agreements that are executed

on or prior to 31 May 2004.

Liberalisation of the equity policy and expatriate employment in the manufacturing sector

The Malaysian Government announced on 17 June 2003 a full liberalisation of equity holdings in

all manufacturing projects. This will allow foreign investors to hold 100 per cent of all investments

in new projects, as well as in investments in expansion or in diversification of projects by existing

companies. Previous restrictions based on the level of exports and types of product or activity have

also been removed.

Effective from 17 June 2003, the policy on the employment of expatriates in the manufacturing

sector has been liberalised. Manufacturing companies with foreign paid-up capital of US$2 million

and above are given automatic approval for up to 10 expatriate posts, while those with for foreign

paid-up capital of more than US$200,000, but less than US$2 million are given automatic approval

for up to five expatriate posts. Expatriates can be employed in executive posts for up to a maximum

10 years and for five years in non-executive posts.

Malaysia • Zaid Ibrahim & Co

Guide to mergers and acquisitions in Asia42

Zaid Ibrahim & Co

Level 19, Menara Milenium

Jalan Damanlela

Pusat Bandar Damansara

50490 Kuala Lumpur

Malaysia

Tel: + 60 3 2087 9999

Fax: + 60 3 2094 4888

+ 60 3 2094 4666

Email: [email protected]

[email protected]

Contact: Lim Kar Han, Richard Ding

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Guide to mergers and acquisitions in Asia 43

People’s Republic of China

1 Are there any restrictions on foreign ownership of companies?

Yes. Foreign ownership is restricted by both the industrial or service sector and the type of

investment vehicle. Restrictions on foreign investment are in flux, with the government taking steps

to overhaul its foreign investment regulatory regime in conjunction with the entry of the People’s

Republic of China (PRC) into the World Trade Organisation (WTO).

Industry specific restrictions

The first port of call for any investor contemplating an investment in the PRC should be the Foreign

Investment Industrial Guidance Catalogue, most recently revised on 1 April 2002. The Catalogue

reflects the PRC’s industrial policy and accordingly sets out the parameters for permitted foreign

investment. The Catalogue divides industries into four categories for foreign investment:

encouraged, permitted, restricted and prohibited.

• For most industries falling within the encouraged category the establishment of wholly foreign-

owned enterprises (WFOEs) is permitted. Nevertheless, the category includes a few sectors

where foreign investors may only establish joint ventures and specifies a handful of sectors where

joint ventures must be controlled by the Chinese party.

• The permitted category also allows for wholly foreign-owned enterprises. The permitted category

is the default position: if a sector is not covered by any of the other three categories then a project

is deemed to be permitted.

• Projects involving industries within the restricted category may take the form of wholly foreign-

owned enterprises in some sectors, but may need to undergo a stricter approval process than

that prescribed for encouraged industry projects.

Freshfields Bruckhaus Deringer

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• Foreign investment is off limits in the prohibited category. The list currently bans foreign

investment in industries such as broadcasting, the construction and operation of power

networks, weapons production and gaming.

The Catalogue will need to be revised as China carries out its market-opening commitments

pursuant to its entry into the WTO.

Foreign investment vehicles

In general, foreign investors are permitted to invest in two corporate forms: limited liability

companies and limited liability companies limited by shares. As the names suggest both corporate

forms provide investors with limited liability, but differ with respect to the number of shareholders

permitted and the manner in which they are established and governed.

Limited liability companies

A limited liability company may have a maximum of 50 equity holders and must be governed by a

board of directors. It must have a minimum registered capital of between 100,000 RMB and

500,000 RMB, depending on the industry in which it is classified. Limited liability companies do not

issue shares.

A foreign invested limited liability company typically takes the form of an equity joint venture,

a cooperative joint venture or a wholly foreign-owned enterprise. Further to recent legislative

changes, in almost all sectors foreign investment in a limited liability company means that that

company is considered a foreign invested enterprise (FIE) and subject to approval by the Ministry

of Commerce (MOFCOM, formerly the Ministry of Foreign Trade and Economic Cooperation

(MOFTEC)) or its provincial or local counterparts. FIE status automatically confers the right to import

inputs used in production by the FIE and to export finished products. Where the foreign party

holds an interest of 25 per cent or more in a manufacturing venture, tax holidays and reductions

are available.

In an equity joint venture, the relationship between the investors is governed by a joint venture

contract (a shareholders agreement) and the company’s articles of association, and profits and

losses are shared according to each investor’s percentage interest in the company. In contrast, in

a cooperative joint venture the parties may share profit in a manner unrelated to the ratio of equity

ownership on terms agreed in the joint venture contract. A wholly foreign-owned enterprise, as the

name suggests, is entirely owned by a foreign investor(s), and its activities will be governed by the

company’s articles of association.

Companies limited by shares

Companies limited by shares must be established by at least five promoters of whom more than

half must be domiciled in the PRC. The minimum registered capital is 10 million RMB. As there is

People’s Republic of China • Freshfields Bruckhaus Deringer

Guide to mergers and acquisitions in Asia44

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Guide to mergers and acquisitions in Asia 45

no upper limit on the possible number of shareholders, this is the corporate form of PRC publicly

listed companies.

Under recent legislation foreign investors are also permitted to set up FIEs and acquire the assets

of PRC companies through such vehicles.

2 What is the relevant legislation relating to foreign ownership and who enforces it?

MOFCOM and its counterparts at the provincial and local levels have primary responsibility for

regulating foreign investment in the PRC. The key legislation includes:

• industrial sectors: Regulations on Foreign Investment Guidelines and the Foreign Investment

Industrial Guidance Catalogue (amended 2002);

• equity joint ventures: Sino-foreign Equity Joint Venture Law (amended 2001) and the

accompanying Implementing Rules (amended 2001);

• cooperative joint ventures: Sino-foreign Cooperative Joint Venture Law (amended 2000) and the

accompanying Implementing Rules (1995);

• WFOEs: Wholly Foreign-owned Enterprise Law (amended 2000) and the accompanying

Implementing Rules (amended April 2001);

• acquisitions: Provisional Rules on the Mergers with and Acquisitions of Domestic Enterprises by

Foreign Investors (April 2003) and Interim Regulations on the Reorganization of State-owned

Enterprises By Using Foreign Investment (January 2003); Notice on the Relevant Issues

Regarding Transferring State-owned Shares and Legal Person Shares to Foreign Investors (1

November 2002); and

• companies limited by shares: Provisional Regulations on Certain Issues Concerning the

Establishment of Companies Limited by Shares with Foreign Investment (1995) and Certain

Opinions on Relevant Issues Regarding Listed Companies Involving Foreign Investment (effective

on 5 November 2001).

In addition, there is considerable legislation in the securities area that pertains to foreign investment

in listed companies, which is administered by the China Securities Regulatory Commission (CSRC),

and foreign exchange controls, which are administered by the State Administration of Foreign

Exchange (SAFE).

3 What approvals are needed and how long does it take to obtain them?

Investors in traditional FIEs, such as joint ventures or WFOEs, are generally required to first obtain

planning approval from the National Development and Reform Commission or its local

Page 48: Guide to mergers & acquisitions in Asia (May 2004)

counterparts, followed by approval of the contractual arrangements by MOFCOM or its local

counterparts depending on the size of the investment. Following the MOFCOM approval a business

license is then issued by the State Administration of Industry and Commerce (SAIC). A similar

approval regime is applied to acquisitions of domestic companies which are to be converted

into FIEs.

Regulations require MOFCOM to issue its approval within 45 days for cooperative joint ventures and

90 days for equity joint ventures or WFOEs. The SAIC is required to issue its approval within 30

days. In practice, however, the time for approvals varies widely. Similar times are prescribed for the

establishment of foreign invested companies limited by shares and the acquisitions of domestic

companies. In certain industries other approvals are required in place of, or in addition to, the

MOFCOM approval. Foreign investment in banks, for example, requires the approval of the China

Banking Regulatory Commission (CBRC) instead of MOFCOM, while foreign investment in shipping,

accounting and advertising companies requires other approvals in addition to MOFCOM approval.

4 Are there any exchange control laws or restrictions on the repatriation of profits?

Foreign investors are permitted to repatriate after tax profits in foreign exchange with relevant

supporting documentation. The PRC’s foreign exchange control system is administered by SAFE.

The Chinese renminbi is convertible on the current account, but capital account transactions are

subject to SAFE approval. Under this system, a company that needs foreign exchange in order to

pay a dividend or distribute profits to a foreign investor may withdraw funds from its foreign

exchange account at designated banks. When these funds are insufficient, usually the company

may purchase additional foreign exchange from designated banks, subject to the production of

relevant supporting documents.

5 What rules govern takeovers or mergers of listed companies and who enforces them?

Takeovers of listed companies are primarily governed by the recent Administrative Measures for the

Acquisition of Listed Companies (December 2002). The CSRC, which issued the rules, has primary

responsibility for enforcing them. Other ministries or agencies may also have a role depending on

the nature of the acquisition.

As yet there are no specific regulations on mergers of listed companies. Mergers of listed

companies are generally governed by PRC Company Law and PRC Securities Law.

6 What is the level of disclosure for shareholdings? Does a memorandum of understanding relating to the

acquisition of shares need to be disclosed?

Shareholdings that reach 5 per cent of the company’s total outstanding shares must be

disclosed. Beyond that threshold, increases or decreases of 5 per cent of the outstanding shares

People’s Republic of China • Freshfields Bruckhaus Deringer

Guide to mergers and acquisitions in Asia46

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Guide to mergers and acquisitions in Asia 47

must also be disclosed, although this is reduced to 2 per cent for changes in shareholdings of B-

shares only.

The general rule is that listed companies are obligated to disclose “information which may have

a substantial effect” on the share price of the listed company. Listed companies are also obligated

to disclose letters of intent and memoranda of understanding for the acquisition of shares,

regardless of whether there are “any additional conditions or time limits” which form part of the

letters or memoranda.

7 Are there any rules restricting the acquisition of shares in a listed company?

Foreign investors are permitted to acquire the following types of shares in PRC companies limited

by shares:

• shares publicly traded on an overseas stock exchange (such as Hong Kong or New York);

• B-shares publicly traded on the Shanghai or Shenzhen stock exchanges;

• shares publicly traded on the Shanghai or Shenzhen stock exchanges, but only through a

qualified foreign institutional investor (QFII) licensed by the CSRC;

• unlisted state-owned or “legal person” shares in listed companies; and

• foreign funded shares in unlisted companies limited by shares or foreign ownership of shares in

foreign invested companies limited by shares (FICLS).

Restrictions vary depending on the type of shares.

• Listed A-shares: With the exception of qualified foreign institutional investors, foreign investors

may not purchase listed A-shares.

• State-owned shares and “legal person shares”: Acquisitions must be consistent with the

industrial policy guidelines set out in the Foreign Investment Industrial Guidance Catalogue and

are subject to approval by MOFCOM. For state-owned shares, official confirmation of the

purchase price and the transaction must also be obtained from the State Assets Administration

and Supervision Commission.

8 What are the key conditions attaching to a takeover offer?

Prior to extending the offer a prospective acquirer must submit to the CSRC a Report on the

Acquisition by Offer (Acquisition Report) and instruct a law firm to opine on its “truthfulness,

accuracy and completeness”. The acquirer must also retain a financial advisor to evaluate and

opine on the acquirer’s ability to carry out the offer. The board of the target must also retain an

independent financial advisor or other professional advisors to analyse the financial condition of the

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People’s Republic of China • Freshfields Bruckhaus Deringer

Guide to mergers and acquisitions in Asia48

company and opine on the “fairness and reasonableness” of the terms of the acquisition offer and

the possible impact of the acquisition on the company.

Within 10 days of the acquirer extending the offer, the board of the target is to report to the CSRC

with, among other things, the board’s recommendation to shareholders. The independent directors

are also to issue a separate independent recommendation.

For cash acquisitions the acquirer is required to deposit a sum of not less than 20 per cent of the

total amount of the acquisition price as a performance bond in a bank account designated by the

relevant branch of China Securities Depositary and Clearing Corporation Limited at the time the

acquisition announcement is made.

Offers must remain open for between 30 and 60 days, during which time they may not be

withdrawn. Amendments are subject to CSRC approval.

Upon expiration of the offer period, the acquirer is required to purchase all the shares in respect of

which the offer has been pre-accepted in accordance with the terms of the offer. If the number of

shares which are the subject of pre-acceptances exceeds the pre-determined number of shares to

be acquired, the acquirer must acquire the shares which are the subject of pre-acceptances on a

pro rata basis.

9 Is there a level at which a mandatory general offer is required? What are the consequences of reaching it?

The threshold is 30 per cent of the total issued shares of the target. Where an acquiror enters into

an agreement or extends an offer, which would result in its ownership or control reaching or

exceeding this level, a mandatory general offer for all of the outstanding shares is required unless the

CSRC grants a waiver from such obligation.

10 Are there any provisions which establish a minimum price for a takeover offer?

The Administrative Measures for the Acquisition of Listed Companies provide for minimum prices

which differ by class of shares.

The offer price for listed shares of a particular class may not be less than the higher of:

• the maximum price the purchaser actually paid for the target’s listed shares of that class during

the six months prior to the initial announcement of the offer; or

• 90 per cent of the arithmetic mean of the daily weighted average price of the target’s listed shares

of that class for the 30 trading days prior to the initial announcement of the offer.

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Guide to mergers and acquisitions in Asia 49

The offer price for unlisted shares may not be less than the higher of:

• the maximum price the purchaser actually paid for the target’s unlisted shares during the six

months prior to the initial announcement of the offer; or

• the target company’s audited net asset value per share as most recently audited.

11 Does a 75 per cent shareholder achieve effective control? If not, why not?

For companies limited by shares, a 75 per cent shareholder can generally achieve effective control,

subject to minority shareholder protection provisions contained in the company’s articles of

association. PRC Company Law provides that shareholders’ resolutions regarding routine corporate

issues need only be approved by a majority of shareholders, while more important matters

concerning merger, division or dissolution of the company or amendments to its articles of

association must be adopted by more than two-thirds of the voting rights of the shareholders in

attendance at a shareholder meeting.

For limited liability companies, whether a 75 per cent shareholder may achieve effective control

depends on the company’s articles of association and joint venture contract (if any). Furthermore,

laws governing equity and cooperative joint ventures require that the board must unanimously

consent to proposals involving mergers, changes in registered capital, amendments to the articles

of association and dissolution.

12 Can a purchaser compulsorily acquire or squeeze out a minority?

PRC law does not provide for compulsory acquisitions or squeeze outs.

13 What is the takeover timetable for achieving full control?

The Administrative Measures for the Acquisition of Listed Companies provide that takeover offers

must remain valid for a minimum of 30 working days and a maximum of 60 working days unless a

competing offer is made.

14 What alternatives are there for achieving control, eg scheme of arrangement with shareholders?

Other than acquiring shares or equity interests, in some cases it may be possible to enter into a

“share management” arrangement with a controlling shareholder and exercise control through

such shares.

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People’s Republic of China • Freshfields Bruckhaus Deringer

Guide to mergers and acquisitions in Asia50

15 What is needed in order to delist a company?

PRC Securities Law provides for mandatory delisting where an offeror acquires through a tender

offer 75 per cent or more of the target company’s share capital. Companies may also be delisted

for serious accounting or reporting irregularities, serious violations of law, failure to meet ongoing

listing requirements, incurring losses over a period of three consecutive years, or bankruptcy. On

30 November 2002, the CSRC issued a revised version of the Implementing Measures for the

Suspension of Listing and Delisting of Listed Companies Suffering Losses. Among other things

these measures set out detailed procedures for the delisting of a company after three consecutive

years of losses. The stock exchanges are authorised to decide whether a company is to be

delisted. However, the final decision rests with the CSRC.

16 Are there any anti-competition or monopoly laws?

The Provisional Rules on Mergers with and Acquisitions of Domestic Enterprises by Foreign

Investors issued in April 2003 provide for compulsory notification of nearly all types of onshore

foreign acquisitions of domestic or foreign-invested assets or companies if any of several triggers

is met:

• business turnover in the Chinese market of a party to the merger or acquisition in the current year

exceeds 1.5 billion RMB;

• share of the Chinese market of a party to the merger or acquisition has reached 20 per cent;

• the merger or acquisition will result in the share of the Chinese market of a party to the merger

or acquisition reaching 25 per cent; or

• the aggregate number of mergers and acquisitions of domestic and foreign-invested companies

in the relevant industry in China exceeds 10 within one year.

The reach of the Provisional Rules on Mergers with and Acquisitions of Domestic Enterprises by

Foreign Investors extends offshore as well. For offshore transactions the notification triggers are:

• assets owned by a party to the offshore merger or acquisition within China exceeding

3 billion RMB;

• business turnover in the Chinese market of a party to the offshore merger or acquisition in the

current year exceeding 1.5 billion RMB;

• the share of the Chinese market of a party to the offshore merger or acquisition and its affiliates

reaching 20 per cent;

• the Chinese market share of a party to the offshore merger and acquisition and its affiliates

reaching 25 per cent as a result of the offshore merger or acquisition; or

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Guide to mergers and acquisitions in Asia 51

• a party to the offshore merger or acquisition directly or indirectly holding equity in more than 15

FIEs in the relevant industry in China as a result of the offshore merger or acquisition.

It is still early days for the Provisional Rules on the Mergers with and Acquisitions of Domestic

Enterprises by Foreign Investors, and their interpretation and implementation by MOFCOM

is evolving.

China has been in the process of drafting an Anti-Monopoly Law for the past several years, and it

appears that the urgency of this process has been stepped up very recently. The Anti-Monopoly

Law will be significant for foreign investors in that it is likely to raise the profile of antitrust regulation

in the PRC and may coincide with enhanced scrutiny of M&A activity that results in increased

market concentration.

17 What stamp duties or other taxes apply to a transfer of shares?

PRC stamp duty is payable on the sale and purchase of A-shares, B-shares, state-owned shares

and “legal person” shares at the rate of 0.2 per cent. PRC stamp duty is not payable on the transfer

of shares listed on an overseas stock exchange, provided that the transfer is not executed or

received in the PRC.

Income tax of 33 per cent is payable on the gains realised by a corporate seller of shares, while

individual Chinese and foreign sellers of shares in PRC companies are currently exempt from PRC

income tax on capital gains.

Recent Relevant Legislation

Mergers and Acquisitions of domestic companies

The Provisional Rules on Mergers with and Acquisitions of Domestic Enterprises by Foreign

Investors was recently issued by MOFCOM, the State Administration of Taxation, the SAIC and the

SAFE and went into effect on 12 April 2003. This regulation sets out a framework for foreign

investors to acquire domestic companies via either shares or purchases of assets.

Antitrust rules

The Provisional Rules on Mergers with and Acquisitions of Domestic Enterprises by Foreign

Investors also sets out — for the first time — antitrust rules that apply to both onshore and offshore

deals with different triggering thresholds. Approval from MOFCOM and the SAIC is required for

deals that raise antitrust concerns. However, the rules are very vague and broad and it still remains

unclear how they will be applied in practice.

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Guide to mergers and acquisitions in Asia52

FIEs with investment by foreign investors of less than 25 per cent

On 30 December 2002, MOFTEC (now MOFCOM), the State Administration of Taxation, the SAIC and

the SAFE issued a notice that allows companies in which a foreign investor holds an interest of less than

25 per cent to be granted FIE status with “foreign investment less than 25 per cent” noted on the FIE’s

approval certificate and business licence. However, such FIEs will not qualify for the preferential tax

policies granted to FIEs, where a foreign party holds an interest of 25 per cent or more.

Opening of A-share market to QFII

On 5 November 2002, the CSRC and the People’s Bank of China issued the Interim Measures on

the Administration of Domestic Securities Investments by QFIIs. Based on this new regulation, it is

possible that a QFII approved by the CSRC may invest in A-shares publicly traded on the Shanghai

or Shenzhen stock exchanges by engaging a qualified domestic commercial bank as trustee.

Transfer of state-owned shares and “legal person” shares of a listed company to foreign investors

On 1 November 2002, the CSRC, the Ministry of Finance and the State Economic and Trade

Commission (SETC) (its function in this respect now transferred to the National Development and

Reform Commission (NDRC)) issued a Notice on Relevant Issues Regarding Transferring State-

owned Shares and Legal Person Shares to Foreign Investors setting out principles and requirements

for the transfer of state-owned or “legal person” shares in a listed company to foreign investors.

First comprehensive listed company takeovers code

The Administrative Measures for the Acquisition of Listed Companies went into effect on 1 December

2002. The measures include detailed provisions on takeovers of listed companies, including takeovers

by agreement, takeovers by offer and conditions for waivers of mandatory offer obligations.

Converting unlisted foreign invested shares into B-shares

On 16 August 2002, MOFTEC (now MOFCOM) issued a notice setting out detailed requirements,

procedures and documents for converting unlisted foreign invested shares into listed B-shares.

Suspension of listing and delisting of companies

On 30 November 2002, the CSRC issued a revised version of the Implementing Measures for the

Suspension of Listing and Delisting of Listed Companies Suffering Losses, setting out detailed

procedures for suspension of listing and the re-listing and delisting of listed companies that have three

consecutive years of losses. Stock exchanges are now authorised to decide on the suspension of listing,

as well as the re-listing and delisting of companies, although the final decision rests with the CSRC.

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Guide to mergers and acquisitions in Asia 53

Significant purchase, sale, or exchange of assets of listed companies

The CSRC issued a Notice on Issues Concerning Listed Companies’ Significant Purchases, Sales,

or Exchanges of Assets on 10 December 2001 providing criteria for and detailed requirements and

procedures relating to significant purchases, sales or exchanges of assets of listed companies.

3705 China World Tower Two

1 Jianguomenwai Avenue

Beijing 100004

People’s Republic of China

Tel: + 8610 6505 3448

Fax: + 8610 6505 7783

Email: [email protected]

34th floor

Jinmao Tower

88 Century Boulevard

Shanghai 200121

People’s Republic of China

Tel: + 8621 5049 1118

Fax: + 8621 3878 0099

Email: [email protected]

Contact: Douglas Markel, Carl Cheng

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Guide to mergers and acquisitions in Asia54

Philippines

1 Are there any restrictions on foreign ownership of shares?

As a general rule, there are no restrictions on the extent of foreign ownership of shares. However,

certain industries are nationalised, ie corporations involved in these industries are permitted only

limited foreign equity, or none at all. Some examples of these industries are mass media, public

utilities, retail trade, advertising and the exploration of natural resources. The Fifth Regular Foreign

Investment Negative List sets out these nationalised activities. It should be noted that investments

by non-Filipino nationals are permitted only if the applicant’s country or state allows Filipino citizens

and corporations to invest and engage in business within its jurisdiction.

2 What is the relevant legislation relating to foreign ownership and who enforces it?

The principal law that regulates foreign equity participation is the Foreign Investments Act of 1991,

as amended. This law sets out the areas of investment that have restrictions on foreign ownership

under the Philippine Constitution and other laws, and imposes certain additional restrictions. The

Negative List, mentioned in section 1, is issued pursuant to this statute. The Anti-Dummy Law

penalises the use of trusts and other devices intended to circumvent nationality restrictions.

Compliance with foreign equity requirements is enforced by the Securities and Exchange

Commission and by the Bureau of Trade Regulation and Consumer Protection. The Department of

Justice supervises the enforcement of the Anti-Dummy Law.

3 What approvals are needed and how long does it take to obtain them?

Investments by non-Filipino nationals are required to be registered with the Securities and Exchange

Commission in the case of corporations, or with the Bureau of Trade Regulation and Consumer

Protection in the case of single proprietorships. After a favourable evaluation, the Commission or

the Bureau, as the case may be, issues a Certificate of Registration. All applications for registration

SyCip, Salazar, Hernandez & Gatmaitan

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SyCip, Salazar, Hernandez & Gatmaitan • Philippines

Guide to mergers and acquisitions in Asia 55

are acted upon within 15 working days from the time they are officially accepted. Otherwise, the

application is considered automatically approved. While there is no express rule or regulation to that

effect, in practice, the Commission does not require the registration of foreign investments that will

not increase the foreign equity of the target domestic corporation to more than 40 per cent.

In addition to registration with the Commission or Bureau, foreign investments may also have to be

registered with the Bangko Sentral ng Pilipinas (the Central Bank), but only if the foreign exchange

needed for repatriation of profits is to be obtained from the Philippine banking system.

4 Are there any exchange control laws or restrictions on the repatriation of profits?

Exchange control restrictions are imposed through regulations issued by the Central Bank, which

is authorised by its charter to restrict or suspend the sale of foreign exchange and subject all

transactions in foreign exchange to licensing by it, in order to combat an exchange crisis or a

national emergency. However, foreign exchange restrictions have, in large measure, been removed

as part of the government’s foreign exchange liberalisation programme and, in general, foreign

exchange transactions may take place without restriction.

If the foreign exchange needed for repatriating profits is to be sourced from the Philippine banking

system, the foreign investment from which these profits accrue must be registered with the Central

Bank. Upon registration, the investment is eligible for the full and immediate remittance of dividends,

profits and earnings, as well as repatriation of capital. In such a case, commercial banks are

authorised to sell and remit the equivalent foreign exchange representing profits and other earnings

without prior Central Bank approval. On the other hand, if the foreign investment is not registered,

the foreign exchange needed for the repatriation of profits or capital must be sourced from outside

the Philippine banking system.

5 What rules govern takeovers or mergers of listed companies and who enforces them?

The Corporation Code governs mergers and consolidations, and the Securities and Exchange

Commission is the government agency charged with the enforcement of the law. Except for rules

that apply to listed shares, there are presently no laws or regulations that govern takeovers.

Under the law, a merger or consolidation must be approved by:

(a) the respective boards of directors of the corporations involved, by a majority vote;

(b) the corporations’ stockholders or members, by a vote of at least two-thirds of the outstanding

capital stock, or the number of members, as the case may be; and

(c) the Securities and Exchange Commission.

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The latter must be the last approval sought. Upon such approval, a certificate of merger, or a

certificate of consolidation, is issued. It is only then that the corporate combination becomes

effective. Under the law, neither creditors nor dissenting stockholders can prevent the

implementation of a merger or consolidation, although a dissenting stockholder has an appraisal

right, ie if he votes against the proposed merger or consolidation, he is entitled to sell his shares in

the corporation by demanding payment of the fair value of his shares by the corporation.

6 What is the level of disclosure for shareholdings? Does a memorandum of understanding relating to the

acquisition of shares need to be disclosed?

Generally, shareholdings are disclosed only in connection with the annual reporting requirement

imposed by the Securities and Exchange Commission on all corporations. The General Information

Sheet, which a corporation must prepare and submit every year, discloses the names of its top 14

stockholders and the amount of their shareholdings. The following corporations are required to file

an annual report setting out the names of the beneficial owners of more than 5 per cent of

outstanding securities and the amount of their holdings:

(a) corporations whose securities are registered with the Commission under the Securities

Regulation Code or listed with the Philippine Stock Exchange; and

(b) corporations with assets of at least PHP50 million (Philippine peso) and having 200 or more

stockholders, at least 200 of which are each holding at least 100 shares.

In turn, every such owner is himself obliged to file a statement of beneficial ownership. Should such

ownership change, he is to file a statement of change in beneficial ownership.

Listed companies are required to inform the Commission and the Exchange promptly of any

material information, corporate act, development or event that is likely to impact on the operation

of the business of the company. In this context, material information, acts, developments or events

are those which induce, tend to induce, or otherwise affect the sale or purchase of securities. A

memorandum of understanding relating to the acquisition of a listed company’s shares does not

itself need to be disclosed. However, in these circumstances, a statement should be submitted to

the Exchange and the Commission announcing the proposed acquisition and setting out the basic

features of the transaction (eg identity of the purchaser, number of shares). Unlisted companies

whose securities are registered under the Code, or who have assets of at least PHP50 million and

have 200 or more stockholders, at least 200 of which are each holding at least 100 shares, are

subject to a similar requirement.

Philippines • SyCip, Salazar, Hernandez & Gatmaitan

Guide to mergers and acquisitions in Asia56

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SyCip, Salazar, Hernandez & Gatmaitan • Philippines

Guide to mergers and acquisitions in Asia 57

7 Are there any rules restricting the acquisition of shares in a listed company?

Except for the foreign equity restrictions mentioned in section 1 above, there are no restrictions

imposed by law on the acquisition of shares. However, it must be noted that general corporation

law grants the existing stockholders of a corporation pre-emptive rights to subscribe to all issues

or disposition of shares of any class, in proportion to their respective shareholdings, unless such

right is denied by the articles of incorporation.

8 What are the key conditions attaching to a takeover offer?

Takeover offers involving the equity securities of a public company are governed by the tender offer

rules of the Securities Regulation Code. Either of the following is considered a public company:

(a) a corporation with a class of equity securities listed on any exchange; and

(b) a corporation with assets in excess of PHP50 million and having 200 or more holders, at least

200 of which are holding at least 100 shares of any class of the corporation’s equity securities.

A tender offer is any publicly announced intention by a person acting alone or in concert with others

to acquire the equity securities of a public company. It is subject to the following principal conditions:

(a) No bidder shall make a tender offer unless, as soon as practicable on the date of the

commencement of the tender offer, he:

(i) files a tender offer statement in the prescribed form with the Commission; and

(ii) hand delivers copies of such statement to the target corporation at its principal office and

to each exchange where the securities subject to the tender offer are listed for trading.

Any additional tender offer material, or material change in the information contained in the tender

offer statement, shall be similarly disclosed to the Commission, the target corporation and the

relevant exchange(s).

(b) The bidder shall publish, send, or give to the security holders a report containing the following

information:

(i) the identity of the bidder;

(ii) the identity of the target corporation;

(iii) the amount and class of securities being sought and the type and amount of

consideration being offered for the securities;

(iv) the scheduled expiration date of the tender offer, whether or not said tender offer may

be extended, and the procedure for any such extension;

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(v) the exact dates on which security holders may withdraw the securities they deposited

pursuant to the tender offer and the manner in which withdrawal may be effected;

(vi) the exact period during which securities will be accepted for payment, the manner of

acceptance and the plan of the bidder in the event of an oversubscription by security holders;

(vii) confirmation from the bidder’s financial advisor or other appropriate third party that the

bidder has sufficient resources to satisfy full acceptance of the tender offer; and

(viii) the information required to be included in the tender offer statement submitted to the

Commission.

If a material change occurs in any of the above information, the bidder is required to disclose such

change promptly to the security holders.

(c) The bidder may disseminate his tender offer to security holders by long form publication or

summary publication. The long form method entails the publication of all the information listed

in point (b) above, while the summary method is satisfied with the publication of the

information mentioned in items (i) to (vii), provided that the bidder:

(i) includes in the publication appropriate instructions for security holders who wish to obtain,

at the bidder’s expense, the information included in the tender offer statement; and

(ii) undertakes to promptly furnish any security holder requesting one, with a copy of the

tender offer statement submitted to the Commission.

(d) Shares tendered pursuant to the tender offer may be withdrawn:

(i) at any time during the period that the tender offer remains open; and

(ii) if they have not yet been accepted for payment, after the expiration of 60 business days

from the commencement of the tender offer.

(e) If a greater number of securities is tendered than the bidder is bound or willing to accept and

pay for, the securities shall be accepted and paid for pro rata, disregarding fractions.

(f) The consideration paid to any security holder pursuant to the tender offer shall be the highest

consideration paid to any other security holder during such tender offer. If the bidder increases

the consideration after the tender offer has commenced, he shall pay such increased

consideration to all security holders whose securities are accepted for payment, whether or

not said securities were tendered prior to the date he increased the consideration.

During the course of a tender offer (or even before the commencement thereof if the board of

directors of the target corporation has reason to believe that such an offer might be imminent), the

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Guide to mergers and acquisitions in Asia58

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Guide to mergers and acquisitions in Asia 59

target corporation shall not engage in any of the following transactions, except (i) in pursuance of a

prior contract; (ii) with the approval of its stockholders in a general meeting; or (iii) with the approval

of the Commission under special circumstances:

(a) issue any authorised but unissued shares;

(b) issue or grant options in respect of any unissued shares;

(c) create or issue any securities carrying rights of conversion into, or subscription for, shares;

(d) sell, dispose of, acquire or agree to acquire any assets, the value of which amounts to

at least 5 per cent of the total value of assets prior to acquisition; and

(e) enter into contracts otherwise than in the ordinary course of business.

9 Is there a level at which a mandatory general offer is required? What are the consequences of reaching it?

Under the Securities Regulation Code, a tender offer is mandatory where any person or group of

persons intends to acquire at least 15 per cent of the equity securities of a public company, or at

least 30 per cent of such securities over a 12-month period. In addition, the implementing rules of

the Code provide that where any person or group of persons intends to acquire equity securities that

would result in its ownership of more than 50 per cent of the equity securities of a public company,

a tender offer must likewise be made. In September 2001, the Securities and Exchange Commission

exempted acquisitions of less than 35 per cent of the equity securities of public companies from the

mandatory tender offer requirement. As of this writing, the exemption is still in place.

In any of the following instances, exemption from the mandatory tender offer requirement may be

sought from the Commission:

(a) the purchase of newly issued shares from the unissued capital stock of a public company;

(b) the purchase of shares in connection with a foreclosure proceeding involving a duly constituted

pledge or security arrangement where the acquisition is made by the debtor or creditor;

(c) the purchase of shares in connection with a privatisation undertaken by the government of the

Republic of the Philippines; and

(d) the purchase of shares in connection with a corporate rehabilitation under court supervision.

The acquisition of a public company’s shares through open market purchases at the prevailing

market price shall be automatically exempted from the mandatory tender offer requirement.

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10 Are there any provisions which establish a minimum price for a takeover offer?

In a mandatory tender offer, the consideration must be the highest price paid by the bidder for the

securities during the past six months. Where the offer involves payment by transfer or allotment of

securities, such securities must be valued on an equitable basis.

11 Does a 75 per cent shareholder achieve effective control? If not, why not?

A 75 per cent shareholder achieves effective control of a corporation as his shareholdings assure

him of more than a majority of the seats on the board of directors and the board elects the

corporation’s president and other principal officers. With regard to those corporate actions requiring

shareholder approval, the law only requires approval by either a majority of the outstanding capital

stock, or two-thirds of it, depending on the particular corporate action involved.

It should be noted, however, that the law permits corporations to stipulate a higher voting

requirement in their by-laws for actions by the board of directors as well as by shareholders. Thus,

a 75 per cent shareholding may not be enough to ensure complete corporate control in a

corporation that has a very high voting requirement.

12 Can a purchaser compulsorily acquire or squeeze out a minority?

No.

13 What is the takeover timetable for achieving full control?

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Guide to mergers and acquisitions in Asia60

Step Timeframe

Tender offer/Purchase of shares A tender offer shall remain open until the expiration of (i) at least

20 business days from its commencement, provided that the

tender offer should generally be completed within 60 days from

the date that it is publicly announced; and (ii) at least 10 business

days from the date that the notice regarding a change in the

percentage of the shares sought or in the consideration offered is

first published, sent, or given to security holders.

Payment of tax If the shares are traded on the stock exchange, the capital gains tax

(technically, stock transaction tax) due on their transfer must be paid

by the seller within 25 days after the end of each taxable quarter.

If the shares are not traded on the stock exchange, the seller has

30 days from the date of the sale within which to pay. Documentary

stamp tax must be paid within five days after the end of the month

when the sale and purchase agreement was executed.

Entry in stock and transfer book These are done only after a tax clearance is procured, which

and issue of stock certificate(s) clearance will attest to the payment of all taxes due on

the transfer.

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Guide to mergers and acquisitions in Asia 61

14 What alternatives are there for achieving control, eg scheme of arrangement with shareholders?

Two alternatives that may be resorted to are the proxy device and the voting trust.

Proxy device

Philippine law allows shareholders to vote by proxy. Thus, if shareholders representing a majority, or

a greater proportion, of the corporation’s outstanding capital stock execute a proxy in favour of a

particular person, the latter will be able to vote all their shares. Technically, a proxy may direct that

the shares be voted a certain way, ie in favour of or against the proposed corporate action, but,

where no directions are given, the designated proxy decides how to vote the share.

Proxies must be in writing, signed by the shareholder and filed with the corporate secretary before

the meeting. If the proxy does not fix a period during which it shall remain effective, it expires at the

end of the particular shareholders’ meeting concerned. On the other hand, if it does fix a period,

such period cannot be greater than five years, although it may be renewed for not more than five

years for each renewal.

Voting trust

Under a voting trust arrangement, a shareholder transfers his shares to a trustee who will exercise

his voting rights. The certificates of stock in the name of the shareholder are actually cancelled and

new ones are issued in favour of the trustee. To safeguard the shareholder’s rights, voting trust

certificates are issued by the corporation in his favour. Under the prevailing view, a voting trust must

have a legitimate business purpose to promote the best interests of the corporation. If it exists only

for the benefit of the trustee without any obligation on the latter’s part to perform any useful service

for stockholders or creditors, the voting trust is considered invalid.

Voting trusts must be in writing and notarised and certified copies must be filed with the corporation

and the Securities and Exchange Commission. A voting trust cannot be effective for a period longer

than five years, although it may be renewed for not more than five years for each renewal.

15 What is needed in order to delist a company?

Upon the application of a listed company, the Philippine Stock Exchange will permit the delisting of

its securities if the following conditions are complied with:

(a) the delisting must have been approved by a majority of the company’s incumbent directors;

(b) all the security holders of the company must have been previously notified of the proposed delisting;

(c) a petition for delisting (including proposed tender offer terms and conditions) shall be filed with

the Exchange at least 60 days prior to the date that the delisting becomes effective;

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(d) a tender offer shall be made to all security holders for all of their outstanding securities. The

Exchange shall appoint an independent financial advisor who must confirm, in a fairness

opinion or valuation report, that the terms and conditions of the tender offer are fair. The fees

of the independent financial advisor shall be paid by the company;

(e) the person(s) proposing the delisting must demonstrate to the Exchange that, after the

acquisition of the tendered securities, he (they) shall have obtained at least 95 per cent of the

company’s outstanding securities;

(f) the company should not have any unpaid fees or penalties; and

(g) the delisting should not prejudice the interests of the investors.

Upon the approval of its application for delisting, the company shall pay a delisting fee equivalent

to its annual listing maintenance fee for the year when the application for delisting was filed.

16 Are there any anti-competition or monopoly laws?

Unfair competition, combinations in restraint of trade and monopolies are prohibited only by general

provisions contained in the Constitution and the Revised Penal Code. There are no statutes that

deal specifically with these issues.

The Philippine Constitution expressly prohibits unfair competition and combinations in restraint of trade.

Monopolies are regulated, or even prohibited, in the public interest. Under the Revised Penal Code, any

person who takes part in any conspiracy in restraint of trade or commerce in order to prevent free

competition in the market, or who monopolises any object of trade or commerce, is guilty of a criminal

offence and may be punished by imprisonment, the imposition of a fine, or both.

17 What stamp duties or other taxes apply to a transfer of shares?

Capital gains and documentary stamp taxes are applicable to the transfer of shares of stock:

(a) Capital gains tax (technically, stock transaction tax on shares traded on the stock exchange)

is imposed on the net capital gains realised by the seller from the disposition of his shares of

stock at the following rates:

• for shares traded on the stock exchange: 0.5 per cent of the gross selling price or gross

value in money of the shares of stock sold; and

• for shares not traded on the stock exchange: 5 per cent of the net capital gains realised

during the taxable year from the sale of shares of stock, if such gains do not exceed

PHP100,000. For gains in excess of PHP100,000 the rate is 10 per cent.

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Guide to mergers and acquisitions in Asia62

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SyCip, Salazar, Hernandez & Gatmaitan • Philippines

Guide to mergers and acquisitions in Asia 63

SyCip, Salazar, Hernandez & Gatmaitan

105 Paseo de Roxas

Makati City

1226 Metro Manila

Philippines

Tel: + 63 2 817 9811-20 / + 63 2 817 2001-09

Fax: + 63 2 817 3896 / + 63 2 818 7562

Email: [email protected]

[email protected]

Contacts: Andres B Sta Maria, Annalisa J Carlota

(b) A documentary stamp tax is also imposed on the sale of shares of stock at the rate of

PHP1.50 for every PHP200, or fractional part thereof, of the par value of the stock.

Recent developments

The exemption from the mandatory tender offer requirement of acquisitions of less than

35 per cent of the equity securities of a public company (which exemption is discussed in

section 9 above) is a development that may be relevant to any intended acquisition of shares in

public companies in the Philippines.

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Guide to mergers and acquisitions in Asia64

Singapore

1 Are there any restrictions on foreign ownership of shares?

There are generally no restrictions on the foreign ownership of shares of companies incorporated

in Singapore. However, there are certain businesses (referred to below) in which there are

ownership restrictions.

(a) Shares of a company owning residential property

Whilst there are no restrictions on foreigners owning commercial or industrial property, foreigners

(both individuals and corporations) are prohibited from owning most residential property. The

Residential Property Act restricts the ownership of most residential property to citizens of

Singapore, Singapore companies (with all shareholders and directors being citizens of Singapore)

and companies exempted from the provisions of the Residential Property Act.

(b) Banks

There is a restriction on the percentage of voting shares which any one person can acquire in a

bank incorporated in Singapore.

The Banking Act provides that the approval of the Monetary Authority of Singapore (MAS) is

required before any person either becomes (i) a holder of 5 per cent or more of the voting rights;

(ii) a holder or controller of 12 per cent or more of the voting rights; (iii) a holder or controller of 20

per cent or more of the voting rights; or (iv) acquires ‘control’ of a Singapore incorporated bank.

‘Control’ refers to situations where a person is able to determine the policy of the bank and where

the directors are accustomed or under an obligation to act in accordance with a person’s

directions.

In 1999, MAS lifted the 40 per cent ceiling on foreign ownership of local banks, but the government

has recently indicated that foreign majority control of a Singapore bank is unlikely to be approved.

Freshfields Drew & Napier

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Guide to mergers and acquisitions in Asia 65

(c) Insurance companies

There is no foreign shareholding limit in relation to Singapore insurance companies. However, under

the Insurance Act, the approval of MAS is required before any person enters into any arrangement

or agreement in relation to any Singapore incorporated insurance company, by virtue of which such

person would, if the arrangement or agreement is carried out or completed, either acquire 5 per cent

or more of the voting rights or obtain ‘control’ of the insurer. A person would be regarded as obtaining

‘control’ of a registered insurer if such person has either actual control (ie where such person alone

or acting together with any associates would be in a position to determine the policy of the insurer,

for example through the creation of a trust whether express or implied), controls not less than 20 per

cent of the voting rights, or holds interests in not less than 20 per cent of the insurer’s issued capital.

(d) Securities dealers and advisors

There is no foreign shareholding limit in relation to licensed securities dealers and advisors in Singapore,

but the conditions of their licences may require MAS approval for changes in shareholding control.

(e) Finance companies

There is no foreign shareholding limit in relation to finance companies incorporated in Singapore.

However, under the Finance Companies Act, MAS approval is required prior to any person entering

into any arrangement or agreement in relation to any Singapore incorporated finance company, by

virtue of which such person would, if the arrangement or agreement is carried out or completed,

either acquire 5 per cent or more of the voting rights or obtain ‘control’ of such finance company.

The definition of ‘control’ under the Finance Companies Act is similar to the definition of ‘control’

under the Insurance Act described above.

(f) Others

Singapore companies involved in industries where Singaporean control of such companies is regarded

as being in the national interest (such as newspaper publishing, telecommunications, broadcasting

and public utilities) may have ownership or foreign ownership restrictions imposed on them pursuant

to specific legislation or contained in their respective memorandum and articles of association.

2 What is the relevant legislation relating to foreign ownership and who enforces it?

Other than the categories listed above, there are generally no restrictions that require shares in a

Singapore company to be held by Singapore nationals.

3 What approvals are needed and how long does it take to obtain them?

No approvals are required for foreign investments in Singapore. Where the business to be conducted

in Singapore is regulated (eg banking, insurance and securities), regulatory approval will be required.

The time period for obtaining approval will vary, but usually at least two months should be allowed.

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Guide to mergers and acquisitions in Asia66

4 Are there any exchange control laws or restrictions on the repatriation of profits?

There are no exchange control restrictions in operation in Singapore. Foreign currency brought into

Singapore can be transferred out freely. In addition, currency is freely convertible. Any profits made

can be repatriated without any restriction, as long as taxes have been paid. There is, however, a

policy against the internationalisation of the Singapore dollar which is reflected in restrictions on the

ability of Singapore financial institutions to extend Singapore dollar facilities to non-residents.

5 What rules govern takeovers or mergers of listed companies and who enforces them?

In Singapore, takeovers and mergers are regulated by a combination of statutory and non-statutory

rules. The principles, procedures and rules that govern the conduct of takeovers are set out in the

Singapore Code on Takeovers and Mergers (Code) which is non-statutory in nature. The body that

administers and polices the provisions of the Code is the Securities Industry Council (SIC). The Code

is issued by the MAS pursuant to the power conferred upon it by the Securities and Futures Act (SFA).

The rules concerning compulsory acquisitions (or minority squeeze-outs) are set out in the

Companies Act (see section 12 below).

All persons, whether natural or artificial, including foreign corporations, are obliged to comply with

the Companies Act, the SFA and the Code.

In addition, where the target company’s shares are quoted on the Singapore Exchange Securities

Trading Limited (SGX), the provisions of the SGX Listing Manual regarding takeovers and mergers

must be complied with. The provisions of the SGX Listing Manual are regulated by the SGX.

6 What is the level for disclosure of shareholdings? Does a memorandum of understanding relating to the

acquisition of shares need to be disclosed?

A person who has an interest in 5 per cent or more of the voting shares of a company listed on the

SGX (a Substantial Shareholder) is required to give notice in writing to the company and the SGX

stating, inter alia, his name and address within two business days of becoming a Substantial

Shareholder. The Substantial Shareholder is also required to give notice of any subsequent 1 per

cent change in shareholding interest within two business days after becoming aware of such a

change. Such notice must specify the name and address of the Substantial Shareholder, the date

of the change and the circumstances leading to that change. The company is in turn required to

make an immediate announcement to the SGX of a person becoming a Substantial Shareholder, or

of any change in shareholding interest so notified.

Whether a memorandum of understanding relating to the acquisition of shares needs to be disclosed

largely depends on the parties involved, the nature of the acquisition and the nature and terms of the

memorandum of understanding. The general rule regarding corporate disclosure policies as set out

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in the SGX Listing Manual is that a listed company must disclose information (i) necessary to avoid

the establishment of a false market in its securities; or (ii) that would be likely to have a material effect

on the price or value of securities of that company. The SGX Listing Manual permits exceptions from

the requirement to make immediate disclosure in certain limited circumstances (such as when a

reasonable person would not expect the information to be disclosed, the information is confidential,

or the information concerns an incomplete proposal or negotiation). Depending on the

circumstances a memorandum of understanding may fall within these exceptions.

(a) A memorandum of understanding between individuals/companies not listed on the SGX

A memorandum of understanding entered into between individuals/companies not listed on the

SGX for the sale and acquisition of shares generally does not require disclosure, as it is effectively

a private arrangement between the parties. However, where the proposed acquisition relates to

shares listed on the SGX, the signing of a memorandum of understanding may give rise to

announcement or notification obligations in certain circumstances including:

• where it indicates a firm intention to make a takeover offer; and

• where it gives rise to a notifiable substantial shareholding interest or change in such an interest.

(b) A memorandum of understanding entered into with a company listed on the SGX for the issue of new

shares in the company

A company listed on the SGX is required to keep its shareholders and the SGX informed, as soon

as reasonably practicable, of any information which might reasonably be expected to materially

affect the price of its securities. A memorandum of understanding that relates to the subscription

of shares of a listed company and constitutes an agreement in principle between the parties should

be disclosed, unless one of the exemptions referred to above applies.

(c) A memorandum of understanding entered into by a company listed on the SGX for the sale or

purchase of existing shares in another company

The SGX Listing Manual requires a listed company to make an announcement if it acquires or

disposes of any shares (including shares of another listed company) in certain circumstances, such

as if the acquisition would result in the listed company holding 10 per cent or more of a listed

company or would result in a company becoming a subsidiary or associated company of the listed

company. Announcement obligations will also arise if the aggregate consideration given or received

compared with the capitalisation of the listed company exceeds 5 per cent of the net assets (after

deducting loan capital and amounts set aside for future taxation) represented by such shares

exceed 5 per cent of the audited consolidated net tangible assets of the listed company. Whether

or not a memorandum of understanding relating to a potential acquisition or disposal of shares that

meets the above criteria needs to be disclosed depends on whether any of the exceptions

mentioned above apply.

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Guide to mergers and acquisitions in Asia68

7 Are there any rules restricting the acquisition of shares in a listed company?

Other than the ownership restrictions and the foreign shareholding restrictions of certain listed

companies stated in section 1 above, and the requirement to make a takeover offer stated in

section 9 below, there are no rules restricting the acquisition of shares in a listed company.

8 What are the key conditions attached to a takeover offer?

If the offeror and persons acting in concert with it hold less than 50 per cent of the voting rights

before making the offer, the takeover offer is conditional upon the offeror having received

acceptances which, together with shares acquired or agreed to be acquired before or during the

offer, would result in the offeror and persons acting in concert with it holding more than 50 per

cent of the voting rights. Voluntary general offers may be subject to other conditions provided

that fulfilment of the conditions is not dependent on the subjective interpretation or discretion

of the offeror.

A mandatory general offer is always subject to the 50 per cent condition mentioned above, but

should not be subject to any other conditions. However, an offeror is allowed to attach conditions

to an agreement, the satisfaction of which would trigger a mandatory general offer obligation (for

example, by including conditions in a share acquisition agreement) if the conditions are clearly

stated, are objective and reasonable and the time for their fulfilment is specified in the agreement.

For example, the making of a takeover offer may be subject to the shareholders’ approval for the

issue of new shares.

9 Is there a level at which a mandatory general offer is required? What are the consequences of reaching it?

A mandatory general offer obligation is triggered when a person or corporation:

• acquires shares which (taken together with shares held or acquired by persons acting in

concert with him or it) carry 30 per cent or more of the voting rights of a public company; or

• together with persons acting in concert with him or it, holds between 30 and 50 per cent of

the voting rights, and such person, or any persons acting in concert with him or it, acquires

in any six-month period additional shares carrying more than 1 per cent of the voting rights.

Persons acting in concert comprise individuals or companies who cooperate to obtain or

consolidate control of a company pursuant to an agreement or understanding.

10 Are there any provisions which establish a minimum price for a takeover offer?

The minimum price for a mandatory general offer is the highest price (excluding stamp duty and

commission) paid by the offeror and persons acting in concert with it for shares of the target

company during the offer period and within six months prior to its commencement. The minimum

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price for a voluntary general offer is the highest price (excluding stamp duty and commission) paid

by the offeror and persons acting in concert with it for shares of the target company during the offer

period and within three months prior to its commencement.

11 Does a 75 per cent shareholder achieve effective control? If not, why not?

Subject to any provisions to the contrary in a company’s articles of association, a 75 per cent

shareholder achieves effective control of a company, as such shareholder is able to have all

shareholders’ resolutions passed at a meeting of the company, whether ordinary resolutions (which

require a simple majority of members attending and entitled to vote) or special resolutions (which

require a 75 per cent majority).

Special resolutions (which require a 75 per cent majority) include resolutions to amend the articles

of association, to reduce the capital of the company (subject to the court’s approval) and to approve

the company’s giving of financial assistance in connection with the acquisition of its shares.

12 Can a purchaser compulsorily acquire or squeeze out a minority?

The power of compulsory acquisition is only available to a company, not to an individual. If a

company acquires 90 per cent of the shares of another company pursuant to a takeover (excluding

any shares held, or deemed to be held, by the purchaser or its related corporations at the time of

the offer), it may by notice, which must be sent within two months of the purchaser achieving the

90 per cent threshold, require that the dissenting shareholders sell out to it. However, the

shareholders whose shares are thus to be acquired may apply to the court within one month of

receipt of the notice from the purchaser, to have the acquisition stopped. If no application is made,

the purchaser is bound to acquire the minority interest.

13 What is the takeover timetable for achieving full control?

Depending on various factors (for example, the duration of the offer period and the date of dispatch

of the offer document) and excluding the time taken to effect a compulsory acquisition, a takeover

in Singapore could take between one and a half months and three months. An indicative timetable

for a voluntary general offer under the Code is set out on page 72.

14 What alternatives are there for achieving control?

An alternative to making a takeover offer would be to achieve control through a scheme of

arrangement under section 210 of the Companies Act.

Typically, such a scheme of arrangement would involve the listed company, its shareholders and the

acquirer. It is an approach that can only be used if the target listed company is inclined to cooperate.

The scheme of arrangement may provide that all the issued shares in the listed entity will be cancelled

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Guide to mergers and acquisitions in Asia70

and new shares issued to the acquirer, or it may provide for the transfer of the existing shares to the

acquirer. In consideration for the cancellation or transfer of their shares in the listed entity, the

shareholders will either receive a cash payment from the acquirer, or receive shares in another company.

Stamp duty may be payable (unless the shares are listed and traded on the SGX).

The scheme of arrangement has to be approved by the members of the company convened at the

direction of the court. The scheme of arrangement will have to be approved by a majority in number

representing not less than 75 per cent in value of the relevant class of shares present and voting at

the meeting. Shares held by the acquirer or persons having a common interest with the acquirer

are generally excluded from constituting the relevant class of members whose approval is to be

sought. If the scheme involves cancellation of shares it will have to satisfy additional requirements

applicable to the reduction of capital.

After the scheme of arrangement has been approved by the members, it must be sanctioned by

the Singapore Court and a copy of the court order must be filed with the Singapore Registry of

Companies before it is effective and binding on all members of the relevant class.

15 What is needed in order to delist a company?

The SGX may agree to an application by a listed company to delist if the following criteria are fulfilled:

(a) the listed company convenes a general meeting to obtain shareholders’ approval for the delisting;

(b) the resolution to delist the company has been approved by a majority of at least 75 per cent

in nominal value of the shares held by the shareholders present and voting, on a poll, either

in person or by proxy at the meeting (the listed company’s directors and controlling

shareholder need not abstain from voting on the resolution);

(c) the resolution has not been voted against by 10 per cent or more in nominal value of the

shares held by the shareholders present and voting, on a poll, either in person or by proxy at

the meeting;

(d) a reasonable exit alternative, which should normally be in cash, should be offered to

(i) the listed company’s shareholders and (ii) holders of any other classes of listed securities to

be delisted. This provision will not apply to the holders of securities which are unlisted at the

time; and

(e) the listed company should normally appoint an independent financial advisor to advise on the

exit offer.

The requirements listed in paragraphs (a), (b) and (c) do not apply to a delisting pursuant to a

voluntary liquidation or scheme of arrangement.

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16 Are there any anti-competition or monopoly laws?

There are no antitrust laws in Singapore. However, certain industries (including the

telecommunications sector, public utilities, media and postal services industries) are subject to

regulations which restrict anti-competitive behaviour.

The United States-Singapore Free Trade Agreement (FTA) was signed on 6 May 2003. The FTA commits

Singapore to enacting legislation regulating anti-competitive business conduct by January 2005.

17 What stamp duties or other taxes apply to a transfer of shares?

(a) Shares listed on the SGX and traded through the Central Depository (Pte) Limited (CDP)

Shares listed and traded on the SGX are settled through the CDP. Stamp duty is not payable in

respect of the trading of such shares.

(b) Shares listed on the SGX but not traded through the CDP

Persons holding shares in securities accounts with the CDP may withdraw the shares from the CDP

and hold them in the form of physical share certificates, which may be transferred in accordance

with the articles of association of the company. Stamp duty is payable at S$0.20 (Singapore dollars)

for every S$100, or any part thereof, on the amount of consideration for or market value of the

shares, whichever is higher. Unless determined otherwise by the parties to the transfer, the stamp

duty will be borne by the transferee.

(c) Shares not listed on the SGX

A transfer of shares in Singapore of a Singapore-incorporated company not listed on the SGX will

attract stamp duty at the rate of S$0.20 for every S$100 or any part thereof, on the purchase

consideration for the shares or the value of the shares, whichever is higher. The stamp duty is borne

by the purchaser, unless there is an agreement to the contrary.

(d) Taxes

Under current Singapore tax law, there is no tax on capital gains. Any profits from the disposal of shares

are generally not taxable unless the seller is regarded as carrying on a business of trading in shares.

(e) Carrying forward of unabsorbed losses and unutilised capital allowances

For any unabsorbed losses or capital allowances to be carried forward, the shareholders of a

company must remain substantially the same (ie generally, at least 50 per cent of the shares must

remain in the same hands).

Freshfields Drew & Napier • Singapore

Guide to mergers and acquisitions in Asia 71

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Singapore • Freshfields Drew & Napier

Guide to mergers and acquisitions in Asia72

20 Raffles Place #18-00

Ocean Towers

Singapore 048620

Tel: + 65 6535 6211

Fax: + 65 6533 5007 / 8007 / 9007

Email: [email protected]

[email protected]

[email protected]

Contact: Elaine Williams, David Simpson, Gary Pryke

Indicative timetable for a voluntary general offer

Date Particulars

Announcement Offeror notifies offeree of firm intention to bid

Day 0 Posting date of offer document: — not earlier than 14 days but not later than 21 days

from date of announcement

Day 14 Last day for offeree s board to issue a circular containing its recommendation to its

shareholders and the advice of the independent advisors

Day 28 First permitted closing date:

if successful: press announcement that the offer is unconditional

if unsuccessful: board meeting of bidder to consider extending and/or improving the offer

Day 39 Last day for offeree to release new information

Day 42 Assuming closing date is Day 28, right of withdrawal of acceptances arises if the offer is

not unconditional

Day 46 Last day for voluntary revision of the offer

Day 60 Last day for the offer to become or to be declared unconditional

Day 81 Last day for settlement of consideration if offer is declared or becomes unconditional

on Day 60

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Guide to mergers and acquisitions in Asia 73

South Korea

1 Are there any restrictions on foreign ownership of shares?

Since 1 January 1994, the Korean government has been gradually liberalising its foreign investment

laws so that most areas are now open to foreign investment. Currently, except for a certain limited

number of industries (eg telecommunications and commercial banks) and certain listed companies

of national importance, foreign ownership of shares is freely allowed, although certain procedural

and administrative requirements still exist.

2 What is the relevant legislation relating to foreign ownership and who enforces it?

The principal law governing foreign investment in Korea is the Foreign Investment Promotion Law

(FIPL). The Securities and Exchange Law (SEL) contains restrictions on the foreign ownership of

shares of certain listed companies of national importance. Finally, although it does not restrict

foreign ownership of shares directly, the Alien Land Acquisition Law places certain restrictions on

foreign ownership of land which may have indirect implications on the foreign ownership of shares.

Foreign investment is generally administered by the Ministry of Commerce, Industry and Energy

(MOCIE), although other ministries and organisations may be involved in certain areas. Matters

related to restrictions under the SEL are administered by the Financial Supervisory Commission

(FSC) and its enforcement organisations.

3 What approvals are needed and how long does it take to obtain them?

Under the FIPL, a report must be submitted to a foreign exchange bank before any acquisition of

existing or newly issued shares. The acquisition can take place after the foreign exchange bank has

issued its receipt, which in practice takes one or two days. The acquisition of shares of a company

involved in the national defence industry will require approval from the MOCIE, which generally takes

no more than 15 days.

Kim & Chang

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4 Are there any exchange control laws or restrictions on the repatriation of profits?

The FIPL and Foreign Exchange Transactions Law regulate the repatriation of profits. Broadly, profits

originating from a foreign investment which was made in compliance with the relevant laws and regulations

can be freely repatriated as long as certain, fairly routine, procedural requirements are satisfied.

5 What rules govern takeovers or mergers of listed companies and who enforces them?

In general, if an acquisition of shares is made under the FIPL, there are no limitations on the number

of shares that can be acquired. However, in addition to restrictions under the FIPL, acquisitions of

shares of a listed company are regulated by the SEL, which applies to both foreign and domestic

acquirers (see below). The SEL is enforced by the FSC and the Financial Supervisory Service.

6 What is the level for disclosure of shareholdings? Does a memorandum of understanding relating to the

acquisition of shares need to be disclosed?

The SEL requires any person (together with those having special relations with such person and those

acting in concert with such person) holding 5 per cent or more of equity securities of a company listed

on the KSE or KOSDAQ to report details of such holdings to the FSC and the KSE (or KOSDAQ, as

the case may be) within five days of attaining that shareholding position. Thereafter, an additional

report is to be filed within five business days of any change in such holdings of 1 per cent or more of

the total issued voting shares of the listed company. ‘Shareholding’ includes legal and beneficial

ownership and certain other categories of deemed shareholdings, such as a right to purchase shares.

In addition to the above 5 per cent reporting requirement, if the holdings reach 10 per cent or more,

a report should be filed within 10 days and any subsequent change in shareholding of any amount

reported on a monthly basis by the tenth day of the following month.

Whether a memorandum of understanding relating to the acquisition of shares needs to be

disclosed is not entirely clear and depends on the legal nature of the document. Even if a

memorandum of understanding is in the form of a simple expression of intent without any details of

terms and conditions of the transaction and does not purport to have any binding effect, the

company may be required to disclose its existence or contents if requested by the KSE.

7 Are there any rules restricting the acquisition of shares in a listed company?

Various rules as discussed above and below apply to the acquisition of shares in a listed company.

8 What are the key conditions attaching to a takeover offer?

Where an investor intends to acquire more than 5 per cent of the shares of a listed company outside

of the KSE or KOSDAQ from 10 or more shareholders within a six-month period, a tender offer is

mandatorily required. In these circumstances, a tender offer statement must be filed with the FSC

South Korea • Kim & Chang

Guide to mergers and acquisitions in Asia74

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and various procedural requirements apply. The offeror may not proceed with the proposed

purchase of shares until three days have elapsed following completion of the reporting steps. The

tender offer period must extend for a minimum of 20 days and a maximum of 60 days from the

expiry of the three-day waiting period. The offeror is prohibited from purchasing shares in the

company in question otherwise than through the tender offer until the tender offer period expires,

and from making another tender offer within one year, except in certain limited circumstances.

Generally, the offeror may not withdraw a tender offer once it has commenced. Withdrawals of

tenders by offerees are freely permitted at all times during the offer period and the offeror may not

assert any claims for damages resulting from withdrawals of tendered shares.

The offeror should purchase, in accordance with the terms and conditions and method of purchase

as set out in the tender offer report, all shares tendered for sale on the date immediately following

the expiry of the tender offer period. Certain exceptions to this purchase requirement may apply

when one of the following has been specified in the tender offer report and public notice:

(i) that if the total number of tendered shares is less than the total intended to be purchased

pursuant to the tender offer, the offeror will not purchase any of the shares tendered; or

(ii) that if the total number of tendered shares exceeds the number intended to be purchased

pursuant to the tender offer, the offeror will purchase pro rata from tendering holders the

number of shares the offeror intended to purchase.

9 Is there a level at which a mandatory general offer is required? What are the consequences of reaching it?

As mentioned above, when an acquirer wishes, during a period of six months, to purchase 5 per

cent or more of the shares in a listed company outside the KSE or KOSDAQ from 10 or more

shareholders, a public tender offer is mandatorily required, subject to certain exceptions.

Acquisitions of shares in breach of this requirement may lead to criminal liabilities and various

sanctions, such as a disposal order and loss of voting rights.

10 Are there any provisions which establish a minimum price for a takeover offer?

There are no restrictions on the minimum price for a tender offer. However, the offeror cannot offer

different prices in the same tender offer.

11 Does a 75 per cent shareholder achieve effective control? If not, why not?

Typically, special resolutions for important corporate acts (eg mergers, transfers of important assets or

businesses, the dismissal of directors and amendments to the articles of incorporation) require the

affirmative vote of two-thirds of the shareholders present at the meeting and representing one-third of the

outstanding shares. Thus, unless the articles of incorporation of a company provide for a higher threshold,

it is generally understood that a 75 per cent shareholder will achieve effective control of a company.

Kim & Chang • South Korea

Guide to mergers and acquisitions in Asia 75

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12 Can a purchaser compulsorily acquire or squeeze out a minority?

No.

13 What is the takeover timetable for achieving full control?

Once an investor acquires a majority of the shares of a listed company, it will still typically take about

six to eight weeks to achieve actual control of the company by passing the necessary

resolutions through a shareholders’ meeting. If the management of the target company is not

cooperative, the investor may need to seek a court order, in which case it will take much longer

to achieve full control.

14 What alternatives are there for achieving control, eg scheme of arrangement with shareholders?

It may be possible for an investor not holding the majority of the shares to have effective control of

the management of a company through an arrangement with other shareholders. However,

because such an arrangement (eg a voting trust) would be a mere contractual arrangement without

the benefit of specific performance as a viable remedy, it might not be reliable in extreme situations.

15 What is needed in order to delist a company?

In order to delist a company voluntarily, the minority shareholding ratio of the company must

generally have fallen below 10 per cent of the outstanding shares.

An application for delisting may then be filed with the KSE after obtaining the shareholders’ approval

for delisting. In addition, the company must give the existing shareholders, who do not want to

remain shareholders after the company is delisted, an opportunity to sell their shares. The KSE has

the discretion to accept or reject applications for voluntary delisting, except in cases when

mandatory delisting requirements, such as the liquidation of a company or a failure to meet the

minimum share diversification ratio for two consecutive years, apply.

16 Are there any anti-competition laws?

Under the Monopoly Regulation and Fair Trade Law (FTL), a corporation whose assets or sales

equal or exceed KRW100 billion (South Korean won) must file a report of the establishment of a

business combination to the Korean Fair Trade Commission (FTC) within 30 days from such

establishment. There are various types of business combinations triggering such reporting

requirement. With regard to the acquisition of existing or new shares in a company that is already

established, such reporting requirement is triggered in the case of an acquisition of 20 per cent (or

15 per cent in the case of a listed company) or more of the total issued and outstanding

voting shares of a company. The report should be filed within 30 days from the date of

delivery of the share certificates, or (where share certificates are not issued) the date of payment of

South Korea • Kim & Chang

Guide to mergers and acquisitions in Asia76

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Kim & Chang • South Korea

Guide to mergers and acquisitions in Asia 77

the purchase price. The KRW100 billion requirement is an amount that is applicable to the

consolidated total assets, or the consolidated annual sales, of the acquirer and all affiliated

companies thereof, whether domestic or foreign.

The FTC has 30 days to determine whether or not to accept the report and, if necessary, may extend

the review period by 60 days. If the FTC views the transaction as having anti-competitive effects, it

may take action as necessary (eg the issuance of a suspension order or a share disposal order).

17 What stamp duties or other taxes apply to a transfer of shares?

A person who transfers shares on the KSE or KOSDAQ is subject to a securities transaction tax

(0.3 per cent of transaction price). In the case of a transaction outside of the KSE or KOSDAQ, the

rate is 0.5 per cent of the transaction price. The transferor may also be required to pay a tax of 27.5

per cent on any capital gains or 11.5 per cent of the transfer price, whichever is smaller, unless the

tax is exempted under an applicable tax treaty.

Seyang Building

223 Naeja-Dong

Chongro-Ku

Seoul

Korea

Tel: + 822 3703 1100 / + 822 3703 1114

Fax: + 822 737 9091/3

Email: [email protected]

[email protected]

[email protected]

Contacts: KS Jeon, Douglas Lee, CS Hwang

Kim & Chang

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Guide to mergers and acquisitions in Asia78

Taiwan

1 Are there any restrictions on foreign ownership of shares?

Foreign investments are regulated by the Statute for Investment by Foreign Nationals (SIFN).

Pursuant to the SIFN, a ‘Negative List’ is promulgated by the Executive Yuan, which sets out

business categories that are either closed to foreign investments, or are subject to restrictions on

foreign ownership. The scope of the ‘Negative List’ has been reduced over the years and it currently

applies to only a limited number of businesses, such as telecommunications, broadcasting and

television, inland transportation, mining, banking and insurance. In relation to listed companies, see

also section 7 below.

2 What is the relevant legislation relating to foreign ownership and who enforces it?

In addition to the various laws governing regulated industries subject to foreign ownership, the SIFN

provides that any foreign investor whose investment project does not fall under the ‘Negative List’

should file a foreign investment application (FIA) with the Investment Commission (IC) of the Ministry

of Economic Affairs (MOEA) in order to be entitled to the various benefits available under the SIFN.

When reviewing the FIA, the IC will ensure that that the FIA application is made in compliance with

the restrictions on foreign ownership. Share transfers involving foreign nationals are also subject to

the review and approval of the IC. An approval from the IC would also be required if a company

having a foreign shareholding exceeding one-third of the outstanding shares or capital contribution,

reinvests in other companies.

Note that the restriction on foreigners holding, individually or jointly, more than 50 per cent of the

capital of a limited company, or constituting a majority of the number of shareholders of a company

limited by shares, has been abolished by the amendment to the Company Law in November 2001.

In relation to listed companies, see section 7 below.

Lee and Li

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Lee & Li • Taiwan

Guide to mergers and acquisitions in Asia 79

3 What approvals are needed and how long does it take to obtain them?

Foreign investors who wish to secure the privileges provided for in the SIFN must file an FIA with

the IC. If the company in question is located in a science-based industrial park (in Hsin Chu City or

Tai-Nan County) or in an export processing zone (in Kaohsiung City or Taichung City), the FIA is filed

with the Science-based Industrial Park Administration (SIPA) or the Export Processing Zone

Administration (EPZA) of the MOEA, instead of with the IC. Normally, the IC or the EPZA grants

approval within one or two weeks of filing. It takes much longer to obtain the SIPA approval,

because companies located in a science-based industrial park are eligible for more tax incentives

and the spaces available in the park are limited. When considering an application, the SIPA reviews

a business plan submitted by the investors and, if necessary, interviews the investors.

4 Are there any exchange control laws or restrictions on the repatriation of profits?

The SIFN provides a statutory guarantee to foreign investors with respect to the repatriation of their

capital investments and profits generated from these investments.

5 What rules govern takeovers or mergers of listed companies and who enforces them?

Takeovers and mergers of listed companies are governed by the Company Law in general, the Law

Governing the Merger of Financial Institutions (promulgated in 2000 to regulate mergers of financial

institutions), the Merger and Acquisition Law (as newly promulgated in 2002), the Securities and

Exchange Law (SEL) and securities related rules and regulations. In particular, the merger and

acquisition of listed companies is governed by the Guidelines Governing the Acquisition and

Disposal of Assets by Listed Companies promulgated by the Securities and Futures Commission

(SFC) in 2002. According to these guidelines, a listed company should implement an internal

procedure rule for the acquisition and disposal of assets, such as during a merger, spin-off,

acquisition or share transfer. Under the guidelines, the procedure rule must be implemented in

accordance with specific requirements and should cover such matters as asset evaluation,

transactional decision, public disclosure and internal control. If the amount of the investment

exceeds 20 per cent of the listed company’s paid-in capital or NT$300,000,000 (Taiwan dollars),

the listed company must report to the SFC and make a public announcement of the relevant

information within two days from the date of the investment’s occurrence.

Unless otherwise specifically exempted or a special approval obtained from the SFC, all the shares

of listed companies must be traded through the Taiwan Stock Exchange (TSE) according to the

Securities and Exchange Law. The SFC, under the jurisdiction of the Ministry of Finance, is the

agency responsible for administering and enforcing securities laws.

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Taiwan • Lee & Li

Guide to mergers and acquisitions in Asia80

The acquisition of listed shares can be made through a tender offer pursuant to the Regulations

Governing Tender Offers of Securities of Listed Companies (the Tender Offer Regulations) last

amended by the SFC in 2002.

A ‘tender offer’ means an offer launched by a person (the bidder) to purchase the securities of a

listed company (the target), and is made directly to the target’s shareholders. The offer can be for

cash, listed securities (the SFC is yet to approve any case involving foreign securities) or a

combination thereof and on an actual delivery basis.

Mergers of listed companies can take place in accordance with the relevant provisions of the Company

Law and the Merger and Acquisition Law, provided that a report is submitted to the SFC on the same

day the merger proposal has been adopted by the respective boards of the merging companies.

6 What is the level for disclosure of shareholdings? Does a memorandum of understanding relating to the

acquisition of shares need to be disclosed?

A director, supervisor, manager or shareholder holding more than 10 per cent of the total

outstanding shares of a listed company can only sell or transfer his shares in the company three

days after he has reported the intended sale or transfer to the SFC, except where the number of

shares to be transferred on each trading day is less than 10,000. Under the SEL a listed company

must report to the SFC and make a public announcement regarding the class, number and par

value of the shares held by its directors, supervisors, managers and shareholders that hold more

than 10 per cent of the total outstanding shares. A person is also required to report to the SFC any

acquisition, whether individual or joint with others, of more than 10 per cent of the total outstanding

shares of a listed company, within 10 days following such an acquisition.

A memorandum of understanding (MOU) relating to the acquisition of shares may need to be

disclosed. According to the Procedure Rules for the Verification and Disclosure of the Material

Information of TSE Companies, any material MOU should be disclosed prior to the opening of trading

hours on the next business day after the execution of the MOU. However, the Procedure Rules for

the Verification and Disclosure of the Material Information of Over-the-Counter Companies

(promulgated by Gre-Tai Securities Market) specifically excludes the disclosure requirement for the

MOUs relating to mergers and spin-offs. In the case of a merger of listed companies, some important

information regarding the merger, eg the purpose and benefits of the merger, the stock exchange

plan and calculating basis, the timetable and the portfolios of the parties to be merged, shall be

disclosed after the merger proposal has been adopted by the respective boards of the companies.

7 Are there any rules restricting the acquisition of shares in a listed company?

Under the Regulations Governing Securities Investment by Overseas Chinese and Foreign

Nationals, qualified foreign institutional investors (QFIIs) and general foreign investors (GFIs) are

Page 83: Guide to mergers & acquisitions in Asia (May 2004)

allowed to make direct portfolio investments in listed companies, subject to certain restrictions,

such as not being able to invest in the businesses, or being able to only make limited investment in

businesses listed on the ‘Negative List’. Investments made by GFIs is subject to a ceiling of US$50

million per year (for corporate investors), or US$5 million (for individual investors), in listed

companies, while the previous ceiling imposed on QFIIs (ie US$3 billion) has been lifted pursuant to

SFC rulings issued in July 2003.

General restrictions on shareholding by QFIIs or GFIs have been abolished. Under these restrictions,

investments by a single QFII or GFI could not exceed 50 per cent of the total outstanding shares of

a listed company and aggregate investments in a company by all QFIIs and GFIs could not exceed

50 per cent of the total outstanding shares of the company.

8 What are the key conditions attached to a takeover offer?

After the amendment of the Tender Offer Regulations in 2002, the requirement imposed on the

bidder to obtain SFC approval has been abolished. However, a bidder still needs to make a filing of

the information prescribed by the SFC prior to launching the tender offer, unless otherwise

specifically exempted. The target must also submit the prescribed information to the SFC within

seven days after the notification of such tender offer by the bidder. The tender offer period should

be between 10 and 50 days and cannot be terminated or amended except for very limited reasons.

When the volume of shares tendered exceeds the offered number, the bidder is to purchase the

shares from all the sellers on a pro rata basis. A bidder is prohibited from purchasing shares of the

target during the period from the date of filing the application for a tender offer with the SFC until

the end of the tender offer period.

9 Is there a level at which a mandatory general offer is required? What are the consequences of reaching it?

Yes, there is a level at which a mandatory general offer is required. Any person, individually or jointly

with others, who intends to acquire more than 20 per cent of the shares of a listed company within

a 50-day period, is obligated to launch a mandatory tender offer.

10 Are there any provisions which establish a minimum price for a takeover offer?

No.

11 Does a 75 per cent shareholder achieve effective control? If not, why not?

Yes. Under Company Law, material corporate matters, such as dissolutions and mergers, require a

quorum of two-thirds of the outstanding shares at a shareholders’ meeting with a simple majority

vote. In addition, for listed companies, the quorum of two-thirds can be replaced by a quorum of

50 per cent with affirmative votes equalling at least two-thirds of the voting shares carried by the

shareholders attending the meeting.

Lee & Li • Taiwan

Guide to mergers and acquisitions in Asia 81

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Taiwan • Lee & Li

Guide to mergers and acquisitions in Asia82

12 Can a purchaser compulsorily acquire or squeeze out a minority?

No. However, if a purchaser has acquired 90 per cent or more of the total issued shares in a

target, the purchaser may merge the target into the purchaser by conducting a short-form

merger and effectively squeeze out the minority by making a cash payment to the minority as

the merger consideration.

13 What is the takeover timetable for achieving full control?

According to the Tender Offer Regulations, the period for a tender offer cannot be shorter than

10 days or longer than 50 days. The bidder may apply to the SFC for an extension of up to 30 days,

if sufficient reasons exist or if another person wishes to compete with the bidder during the tender

offer period. The competing bid must be submitted to the SFC at least five days prior to the expiry

date of the tender offer period.

14 What alternatives are there for achieving control, eg scheme of arrangement with shareholders?

It is possible for two or more shareholders of a listed company to reach an agreement with respect

to exercising their voting rights at a shareholders’ meeting. A common practice for enhancing voting

rights at a shareholders’ meeting is to solicit proxies from other shareholders. Pursuant to Company

Law, all meetings of shareholders and boards of directors must actually take place. Any shareholder

who is not able to attend a shareholders’ meeting may issue a proxy to another person (who may

or may not be a shareholder) to attend the meeting on his behalf. The proxy solicitation procedures

for a listed company are regulated by the SFC. It should be noted, however, that under Company

Law, voting rights represented by a proxy or proxies that exceed 3 per cent of the total outstanding

shares of the company will be ineffective if two or more proxies are issued to the same person.

Another alternative is to reach a voting agreement or to set up a voting trust pursuant to the Merger

and Acquisition Law.

15 What is needed in order to delist a company?

According to the delisting rules promulgated by the TSE and Gre-Tai Securities Market, approval from

the board of directors’ or shareholders’ meeting is required to delist a company. The directors or

shareholders who affirm the delisting proposal should represent the shareholding of at least two-thirds

of the outstanding shares. In the board of directors’ or shareholders’ meeting, the directors and/or

supervisors of the company should undertake to purchase the company’s shares (ie by presenting a

written undertaking) for a period not less than three months with the purchase price not lower than

the shares’ weighted market price during the one month before the respective board of directors’ or

shareholders’ meeting. A TSE company should file a delisting application with the TSE for approval by

the SFC and TSE, and an Over-the-Counter company should file a delisting application with the Gre-

Tai Securities Market to be approved by the SFC and the Gre-Tai Securities Market.

Page 85: Guide to mergers & acquisitions in Asia (May 2004)

16 Are there any anti-competition or monopoly laws?

In addition to the regulations under the SEL for securities trading in the Republic of China, the Fair

Trade Law (FTL) contains certain requirements for a transaction that involves the taking over or

consolidation of a business if the transaction meets any of the specified conditions. A transaction

is deemed a ‘combination’, if one company holds or acquires shares or capital contributions

representing more than one-third of the total voting shares or the total capital stock of the target

company. If any of the following thresholds is met, a notification is required to be filed with the Fair

Trade Commission:

(a) as a result of a combination, the market share of the combined entity reaches one-third;

(b) one of the companies involved in the combination has a market share of one-quarter; or

(c) the sales volume of one of the companies participating in the combination exceeded

NT$10 billion in its most recent fiscal year and the other participating company’s sales

volume exceeded NT$1 billion; or for a combination of financial institutions, the sales volume

of one exceeded NT$20 billion in its most recent fiscal year and that of the other exceeded

NT$1 billion.

17 What stamp duties or other taxes apply to a transfer of shares?

The transfer of shares results in the payment of a securities transaction tax at 0.3 per cent of the

transfer price, which is borne by the transferor and withheld by the transferee from the purchase

price and paid to the tax authorities on the date of transfer or the following day. Capital gains tax is

presently suspended. No stamp duty is payable.

Lee & Li • Taiwan

Guide to mergers and acquisitions in Asia 83

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Taiwan • Lee & Li

Guide to mergers and acquisitions in Asia84

Lee and Li

7th Floor

201 Tun Hua N Road

Taipei 105

Taiwan, ROC

Tel: + 886 2 2715 3300 (Ext. 2245)

Fax: + 886 2 2713 3966

Email: [email protected]

[email protected]

[email protected]

Contacts: Sophia H.H. Yeh, CV Chen, Kwan-Tao Li

Recent developments

The Republic of China’s government continues to liberalise its foreign investment policies and

regulations. For instance, cable and satellite television businesses and automobile route freight

transport businesses have been opened to foreign investment. The Ministry of Transportation and

Communications amended the Telecommunication Law in 2002 to loosen the percentage cap on

foreign nationals’ shareholding in telecommunications companies. The maximum limit of direct

foreign ownership allowed in a Type I telecom enterprise has been increased from 20 per cent to

49 per cent. In addition, among the SFC rulings promulgated during July 2003, the liberalisation of

restrictions on investments by QFIIs includes the lifting of (i) the US$100 million (or US$50 million for

securities firms) minimum requirement for the investor’s asset value; and (ii) the two-year period for

inward remittance of the approved investment capital. The SFC also indicated that further

liberalisation would include (i) classifying foreign investors simply into two categories, individual

investors and institutional investors; and (ii) further streamlining the application process.

In addition, the intention of the Merger and Acquisition Law, promulgated in 2002, was to remove

obstacles and provide additional incentives for and privileges to companies proceeding with a merger

or acquisition, such as simplified procedures, allowance of more complicated transaction structures,

like share exchange and spin-offs, flexible employment transfer mechanisms and tax benefits.

Page 87: Guide to mergers & acquisitions in Asia (May 2004)

Guide to mergers and acquisitions in Asia 85

Thailand

1 Are there any restrictions on foreign ownership of shares?

Restrictions on foreign ownership of shares depend on the activities of the relevant company and

whether it owns land. In addition, there are some industry specific restrictions as described in

section 2 below.

Foreign Business Act

The principal statutory restriction on foreign investment in Thailand is the Foreign Business Act B.E.

2542 (1999) (FBA).

The FBA restricts or prohibits a non-Thai national (including a company of which at least half of the

share capital is owned by non-Thai nationals) from engaging in certain businesses unless:

(a) the business has obtained US Treaty status (see discussion under ‘US Treaty’ section below),

or permission to operate its business under the Industrial Estate Authority of Thailand Act, or

the benefit of promotion by the Board of Investment under Thailand’s Investment Promotion

Act; or

(b) approval is obtained from the Cabinet or the Director-General of the Department of Business

Development.

In determining whether a company is considered to be a non-Thai national, the number of shares

held by non-Thai nationals is considered, rather than the rights attached to such shares.

US treaty

Currently, the FBA does not apply to United States nationals and juristic persons (being companies

of which more than half of the issued shares are owned by United States nationals) registered as

such under the Treaty of Amity and Economic Relations between the Kingdom of Thailand and the

United States of America, 1966 (the Treaty). United States nationals and juristic persons are

Freshfields Bruckhaus Deringer

Page 88: Guide to mergers & acquisitions in Asia (May 2004)

permitted to establish or invest in companies engaged in most businesses in Thailand on the same

basis as Thai nationals, provided the Treaty’s tests for United States nationality (essentially, more

than half of the issued shares of the relevant company must belong to Americans) are satisfied.

There are no similar agreements between Thailand and any other country.

A number of businesses such as accounting, legal services, telecommunications, transportation,

fiduciary functions, banking (deposits only) and domestic trading of local agricultural products are

expressly excluded from the Treaty.

The future of the Treaty is not certain. The Thai government is reviewing the status of the US Treaty

and has not yet reached a final decision as to whether the Treaty should be extended or ended.

Land

Subject to a limited number of exceptions, the Land Code prohibits a non-Thai national (including

a company of which more than 49 per cent of its share capital is owned by non-Thai nationals) from

owning land. In determining whether a company is considered to be a non-Thai national for the

purpose of the Land Code, the number of shares held by non-Thai nationals is considered, rather

than the rights attaching to such shares. The circumstances in which non-Thai nationals may own

land include:

• if permitted by the terms of a promotion granted by the Board of Investment; and

• if the land is located in an industrial estate under the control of the Industrial Estate Authority

of Thailand.

2 What is the relevant legislation relating to foreign ownership and who enforces it?

In addition to the FBA and the Land Code, there are ownership and foreign ownership restrictions

contained in other industry specific legislation.

Banking

Under the Commercial Banking Act:

• at least 75 per cent of the issued shares of a Thai commercial bank must be held by Thai

nationals; and

• no investor, other than certain organisations such as government agencies and state enterprises,

can hold more than 5 per cent of the issued shares of a commercial bank. Shares acquired in

excess of such 5 per cent threshold cannot be voted and do not carry a right to dividends.

These restrictions may be, and have in the past been, relaxed by the Minister of Finance on a case-

by-case basis.

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Insurance

Under the Life Insurance Act and Non-Life Insurance Act:

• at least 75 per cent of the issued shares of an insurance company must be held by Thai

nationals; and

• shares acquired by non-Thai nationals in excess of such 25 per cent threshold cannot be

voted and do not carry a right to dividends.

This restriction does not apply to branches of foreign insurance companies.

Draft legislation has been proposed, but not yet enacted, to allow foreign participation in life and

non-life insurance companies up to 49 per cent of the issued shares of the relevant company.

Finance companies

The Act on Undertaking of Finance Business, Securities Business and Credit Foncier Business provides

that at least 75 per cent of the issued shares of a finance company must be held by Thai nationals.

These restrictions may be, and have in the past been, relaxed by the Minister of Finance on a case-

by-case basis.

Telecommunications

For all but one category of telecommunications business licence, the Telecommunications Business

Act (TBA) requires that at least 75 per cent of the issued shares of a company to which a

telecommunications licence is granted must be held by Thai nationals. Draft legislation has been

proposed to reduce this requirement such that foreign ownership of not more than 50 per cent of

the issued shares of a telecommunications company would be permitted. As the National

Telecommunications Commission, the regulatory body contemplated by the TBA, has not yet been

established, no telecommunications licences have yet been issued. Presently, telecommunications

companies operate their businesses pursuant to government granted concessions, which enable

them to operate notwithstanding that less than 75 per cent of their issued shares may be held by

Thai nationals. Furthermore, Thailand has announced to the World Trade Organisation that its

telecommunications market will be open for full competition by local and foreign operators by 2006.

Others

It is quite common for Thai companies (including listed companies) to have foreign shareholding

restrictions in their articles of association.

3 What approvals are needed and how long does it take to obtain them?

The time required for approval of foreign participation in a non-regulated business, to the extent that

approval is available, varies. An approval period of approximately three months from the date the

required documents are complete and submitted is, however, typical.

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Foreign participation in excess of the ceiling on foreign ownership in commercial banking or in

finance businesses requires approval from the Ministry of Finance. Since this approval is granted on

a case-by-case basis, the timing may vary.

4 Are there any exchange control laws or restrictions on the repatriation of profits?

As a general rule, all matters involving foreign currency are regulated by, and require the permission

of, the Bank of Thailand. Since 1990, however, the Bank of Thailand has considerably relaxed its

foreign exchange control. At present, many transactions in foreign currency can be performed

virtually without restriction, and only a few require approval from the Bank of Thailand.

Outward remittance

The Bank of Thailand has authorised commercial banks (including supra-finance companies, Thai

banks and full branches of foreign banks in Thailand) to approve certain transactions on its behalf

in accordance with its rules and regulations. In practice, commercial banks will, as a matter of

course, approve the purchase and remittance of foreign currencies for most types of transactions,

provided that a request for approval is accompanied by the requisite supporting documents.

Inward remittance

The inward remittance of money for investment in Thailand does not need to be registered or

authorised, although it is desirable to keep the evidence of any inward remittance to facilitate any

subsequent outward remittance. However, foreign currency brought into Thailand must be sold to

a commercial bank within seven days. It cannot be maintained in a foreign currency account of a

Thai resident, unless the Thai resident has an obligation to remit the foreign currency in the amount

so deposited to a non-resident person or a commercial bank within six months from the date of the

deposit.

Repatriation of profits

The repatriation of profits derived in or from Thailand in foreign currencies, whether in the form of interest,

dividends or capital gains, will be approved by a commercial bank as a matter of course upon

presentation of the relevant supporting documents (such as evidence of the relevant holding of shares

or disposal of assets).

5 What rules govern takeovers or mergers of listed companies and who enforces them?

The Securities and Exchange Act (SEC Act) and the takeover rules issued thereunder govern

takeovers or mergers in Thailand. The Securities and Exchange Commission (SEC) supervises and

regulates the takeover of listed public companies. Takeovers of unlisted public companies and

private companies are not regulated under the takeover rules, but are subject to the general

provisions of the Thai Civil and Commercial Code or the Public Limited Company Act.

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6 What is the level for disclosure of shareholdings? Does a memorandum of understanding relating to the

acquisition of shares need to be disclosed?

When a person acquires shares of a public company (whether or not listed) and thereby increases

the number of shares held by him in aggregate to a number which reaches or exceeds any multiple

of 5 per cent of the total number of issued shares of the company, a report must be submitted to

the SEC prior to the end of the next business day.

In relation to the requirement to disclose a memorandum of understanding, the Stock Exchange of

Thailand (SET) requires that, during the negotiation of an acquisition of shares, the offeror and major

shareholders of the target company must ensure that the persons involved in the negotiations keep

all information regarding the negotiations confidential. If information is leaked, the target company

(as well as the acquiror if it is also a listed company) must immediately disclose certain required

information to the SET.

7 Are there any rules restricting the acquisition of shares in a listed company?

The main restrictions on the acquisition of shares in a listed public company are the foreign

ownership restrictions discussed in sections 1 and 2 above. However, as noted in section 2 above,

the articles of association of some listed companies may restrict foreign ownership. Prior to an

acquisition of shares, the articles of association may therefore need to be amended to permit

foreign ownership up to the levels permissible under the relevant law.

In addition, if an offeror is a listed company and the acquisition is of a size which exceeds thresholds

as specified under the SET rules, or constitutes an acquisition of the business of another person,

the offeror may be required to obtain approval from its shareholders (passed by a vote of not less

than three-quarters of the votes of shareholders who attend the meeting and have the right to vote)

in order to acquire shares of another company (whether listed or unlisted).

8 What are the key conditions attached to a takeover offer?

Key conditions attaching to a takeover offer include:

(a) the offeror must specify an offer period of not less than 25 consecutive business days, and

not more than 45 consecutive business days;

(b) the offeror must allow the holders of securities who have declared their acceptance pursuant

to the takeover offer to cancel their acceptance during a period of not less than 20 business

days during the offer period and must clearly specify the option in the takeover offer;

(c) if the offeror intends to delist the shares of the target company, that intention must be clearly

stated in the takeover offer; and

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(d) the offeror cannot during the six-month period after the tender offer purchase additional

shares of the target company at a higher price or on terms which are more favourable than

those specified in the offer document.

A mandatory general offer must be for an offer for all the securities of the target company and must

be unconditional. The offer price must be satisfied in cash (or a cash alternative offered). A

mandatory takeover offer may be cancelled under certain circumstances (subject to approval of the

SEC) if, after receipt of the takeover offer by the SEC and before the offer period has expired, there

is significant damage to the target’s position, assets or the value of its shares.

A voluntary offer must be an offer for all the securities of the target company unless the conditions

for a partial offer (see below) have been met. No conditions are permitted to be attached to a

voluntary offer other than an acceptance condition which allows the offer to be withdrawn if the

number of shares acquired is less than the minimum number specified in the offer. Also, as with

mandatory general offers, voluntary general offers may be cancelled in circumstances as described

above where there is significant damage to the target’s position, assets or the value of its shares.

Partial offers are permitted only if:

• approved by shareholders at a meeting of shareholders of the target company representing

not less than 50 per cent of the total voting rights of the shareholders attending the meeting

and having the right to vote;

• the offeror (following the partial offer) will not hold more than 50 per cent of the total voting

rights attaching to shares of the company; and

• during the six-month period prior to the offer, the offeror has not acquired (i) shares of the

target company representing in aggregate more than 20 per cent of the total voting rights

attaching to the shares of the target company for which the offer is made or (ii) shares from

an individual shareholder in excess of 5 per cent of the total number of shares for which the

offer is made.

9 Is there a level at which a mandatory general offer is required? What are the consequences of reaching it?

Under the takeover rules an obligation to make a mandatory general offer will be triggered if a

person acquires shares of a listed public company giving rise to such person having:

• 25 per cent or more; or

• 50 per cent or more; or

• 75 per cent or more

of the total voting rights attaching to shares of that listed public company.

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10 Are there any provisions which establish a minimum price for a takeover offer?

The same offer price must be offered to all shareholders of the target company. If the offeror has

acquired shares of the target company during the 90 days prior to the date of receipt of the

takeover offer by the SEC, the offer price must be no lower than the highest price paid for such

shares by the offeror during such period. If the offer price includes consideration other than cash,

the portion of the offer price which is cash must not be less than the highest cash amount paid for

such shares during the 90 days prior to the date of receipt of the takeover offer by the SEC.

The SEC has imposed new rules for determining the offer price if the offer is made for the purposes

of delisting the target company.

11 Does a 75 per cent shareholder achieve effective control? If not, why not?

Subject to any provisions to the contrary in a company’s articles of association, a 75 per cent

shareholder achieves effective control of a company as such shareholder is generally able to pass all

resolutions at a meeting of the shareholders of the company, whether ordinary resolutions (which require

a simple majority of members attending and entitled to vote) or special resolutions (which require a

three-quarters majority).

However, the 75 per cent shareholder would not be able to vote its shares if it has an ‘interest’ or

a ‘special interest’ in the matter to be voted on. It is therefore possible that shareholders holding

less than 25 per cent may block a resolution to be passed by shareholders if the 75 per cent

shareholder has an ‘interest’ or a ‘special interest’ in the matter to be voted on.

12 Can a purchaser compulsorily acquire or squeeze out a minority?

There is no concept of a compulsory acquisition, or squeezing out, of a minority. The offeror cannot

compulsorily acquire shares from minority shareholders, even where the delisting of the target

company from the SET is proposed.

13 What is the takeover timetable for achieving full control?

The time required depends on various factors. Leaving aside the requirement for approval from any

regulatory body, it takes approximately 80 calendar days (assuming an offer period of 25 business

days, which is the minimum offer period permitted) from the date of announcement of the transaction

to achieve full control in the form of the acquisition of shares of a listed public company, where

approval of the shareholders of the target company or of the offeror is required.

14 What alternatives are there for achieving control, eg scheme of arrangement with shareholders?

There is no concept under Thai law of a scheme of arrangement. Apart from obtaining control

through the acquisition of existing shares, or the subscription of new shares, control of another

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company can be achieved through an amalgamation. Under the amalgamation procedure, the two

existing companies disappear, their assets and liabilities are transferred to a new company and their

shareholders become shareholders in the new company. It is a cumbersome procedure.

15 What is needed in order to delist a company?

A listed company is entitled to apply to delist its shares from the SET when a resolution to delist the

company has been passed at a shareholders’ meeting by a vote of not less than three-quarters of the

total issued shares of the company and there is no objection from any shareholder or shareholders

holding 10 per cent or more of the shares of the company. The company must apply for approval from

the SET, appoint a financial advisor and arrange a tender offer for its shares held by the shareholders

(other than the offeror). In this regard, the SEC rules regarding tender offers applies.

16 Are there any anti-competition or monopoly laws?

Thailand has anti-competition legislation in the form of the Trade Competition Act (the Competition

Act) and provisions concerning anti-competition in the Constitution of the Kingdom of Thailand (the

Constitution).

Competition Act

Generally, the Competition Act applies to all types of businesses, including finance, insurance, and

other businesses as may be prescribed. The Trade Competition Committee chaired by the Minister

of Commerce is the regulatory body under the Competition Act.

The Competition Act prohibits certain forms of abuse of dominant position, certain anti-competitive

agreements and restrictive arrangements and unfair trade practices. It also empowers the Trade

Competition Committee to control certain forms of prohibited activities of a market dominant

business operator and anti-competitive mergers and acquisitions.

Constitution

The Constitution which was amended and promulgated in 1997 contains certain provisions which

deal with anti-competitive behaviour and monopolies.

17 What stamp duties or other taxes apply to a transfer of shares?

Corporate income tax and withholding tax

The withholding tax liability on the transfer of shares depends on the identity of the transferor.

If the transferor is an individual shareholder (whether Thai or non-Thai) and the transfer is effected

on the SET, capital gains arising from a transfer are exempt from withholding tax liability. Sales in a

tender offer would be considered to be sales through the SET.

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If a transfer by an individual is not effected on the SET, capital gains are subject to a withholding tax

at progressive rates ranging from 5 to 37 per cent. If the transferor is a non-Thai individual

shareholder, capital gains are subject to Thai withholding tax at the rate of 15 per cent, but are

exempt if the transferor resides in a country, which has a double tax treaty with Thailand that

exempts capital gains from withholding tax.

If the transferor is a company established under Thai law, or a company established under foreign

law, which carries on business in Thailand, capital gains are not subject to withholding tax, but the

transferor is required to include the capital gains as part of its income for the purpose of computing

its net profits.

If the transferor is a company established under foreign law, which does not carry on business in

Thailand, capital gains are subject to withholding tax at the rate of 15 per cent unless the transferor

is located, or incorporated, in a country which has a double tax treaty with Thailand that exempts

capital gains from withholding tax.

Stamp duty

If the Thailand Security Depository Co., Ltd. (TSD) is the registrar of the relevant shares, a transfer

of shares is exempt from stamp duty. Currently, the TSD is appointed as the registrar of shares for

all companies listed on the SET.

If the TSD is not the registrar, a share transfer agreement is subject to stamp duty at the rate of 0.1

per cent on the transfer price or the par value of the shares, whichever is higher.

Value-added tax (VAT) and specific business tax

Currently, no VAT or specific business tax is levied on the transfer of shares.

10th Floor

Sathorn City Tower

175 South Sathorn Road

Khet Sathorn

Bangkok 10120

Thailand

Tel: + 66 (2) 344 9200

Fax: + 66 (2) 344 9300

Email: [email protected]

[email protected]

Contact: Elaine Williams, Veeranuch Thammavaranucupt

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Guide to mergers and acquisitions in Asia94

Profiles Freshfields Bruckhaus Deringer

HONG KONGRobert Ashworth Email: [email protected]

Robert Ashworth is head of the firm’s corporate practice in Asia. He joined the firm in London in1985 and from 1989 to 1992 worked in the firm’s New York office before moving to Hong Kong in1994. He was made partner in 1997. Robert specialises in public and private M&A and securitieswork and advises on initial public offerings (IPOs) and capital-raising exercises generally. Hewrites and speaks regularly on legal aspects of mergers and acquisitions and is the consultingeditor of Freshfields Bruckhaus Deringer’s Guide to mergers and acquisitions in Asia.

BEIJINGDouglas Markel Email: [email protected]

Douglas is the managing partner of the Beijing office and has been partner since 1997. He hasbeen based in Beijing for over 12 years and is fluent in Mandarin, Cantonese and French. Douglasspecialises in all aspects of foreign direct investment, public and private M&A, private equity,technology licensing, corporate restructuring, information technology and media, and solvingcomplex problems in established ventures in China. He writes and speaks regularly ondevelopments in PRC law affecting foreign companies doing business in China. Douglas hasbeen published in The Financial Times, The International Financial Law Review, The ChinaBusiness Review, China Law & Practice and Doing Business in China.

HONG KONGEmail: [email protected] Teresa Ko

Teresa Ko is a partner in the Hong Kong office. She joined the firm in 1988 and was made apartner in 1993. She has wide experience in public and private acquisitions and disposals,particularly in the banking sector. She also specialises in initial public offerings (including many ofthe largest international equity offerings to come out of the PRC) and capital-raising exercises.She has advised on corporate reorganisations, direct investment and joint ventures in Hong Kongand the PRC. She is a member of the Hong Kong Takeovers and Mergers Panel of the Securitiesand Futures Commission and she has also been appointed to the successor body of theSecurities and Futures Appeals Tribunal under the new legislation.

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Profiles

Guide to mergers and acquisitions in Asia 95

TOKYOEmail: [email protected] Nobuo Nakata

Nobuo Nakata is a partner in Freshfields Law Office. His practice focuses primarily on M&A,structured finance and other corporate and financial transactions. His clients includeJapanese and international banks, securities houses, insurance companies and otherbusiness corporations.

Mr Nakata was educated at the University of Tokyo, the Legal Research and Training Instituteof the Supreme Court of Japan and graduate law school of the University of Pennsylvania. He wasadmitted as a Japanese bengoshi in 1985 and to New York bar in 1991 and is a member of theTokyo Bar Association. He speaks Japanese and English.

TOKYOEmail: [email protected] Naoki Kinami

Naoki Kinami is a partner in the Tokyo office. He became a partner of Freshfields Law Officein May 1998 when Freshfields and Kinami & Associates merged and became the currentregistered associated offices of Freshfields Law Office and Freshfields Foreign Law Office.Naoki has practised law in Japan for more than 25 years and has extensive experience ininternational finance, public and private acquisitions and disposals, banking and regulatorywork. He is a native Japanese speaker.

TOKYOTim Wilkins Email: [email protected]

Tim is a partner in Freshfields Foreign Law Office. He has worked in Japan for over eight years.His practice focuses primarily on corporate mergers, private equity investments, joint venturesand software licensing. His clients include US and European multinationals, e-commerce venturesand major Japanese corporations.

Tim is a graduate of Harvard College, Harvard Law School and Harvard Business School. He was awarded a Ford Foundation Fellowship in Public International Law. He is a member ofthe Dai-ichi Tokyo Bar Association and the New York Bar and speaks English and Japanese.

SHANGHAICarl Cheng Email: [email protected]

Carl Cheng is a corporate partner in the Shanghai office. He joined the firm in China in 1993, andwas made a partner in 1998. He specialises in advising on public and private acquisitions anddisposals, restructurings, international equity offerings and other equity transactions, and directinvestment and infrastructure transactions. Before coming to China, Carl practised law in theUnited States. He is fluent in written and spoken Mandarin, Japanese and English.

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Profiles

Guide to mergers and acquisitions in Asia96

SINGAPOREEmail: [email protected] Gary Pryke

Gary is a director of Drew & Napier LLC, our joint law venture partner in Singapore. He joined thefirm in 1986, became a partner in 1991 and subsequently a director on the firm’s corporatisationin 2001. Gary’s main area of practice is corporate finance, including mergers and acquisitions,securities and stock exchange-related work.

BANGKOKVeeranuch Thammavaranucupt Email: [email protected]

Veeranuch Thammavaranucupt is an associate in the Bangkok office. She joined the firm in 1994.Veeranuch advises on commercial, banking, securities transactions and corporate work includingjoint ventures and investment-related transactions in Thailand. She co-authored the Thai chapterin Global Securitisation and Structured Finance 2003.

SINGAPORE/BANGKOKElaine Williams Email: [email protected]

Elaine is a partner based in our Singapore office. She has been in Asia for over 10 years. Elainehas extensive experience of cross-border mergers and acquisitions in Asia and has handled awide range of corporate finance and general corporate transactions in Asia, including jointventures and international equity and equity-related issues. She divides her time between theBangkok and Singapore offices.

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B A N G KO K

Elaine WilliamsT + 66 2344 9200E [email protected]

B E I J I N G

Douglas MarkelT + 8610 6505 3448E [email protected]

H A N O I

Tony FosterT + 84 4 8247 422E [email protected]

H O C H I M I N H C I T Y

Milton Lawson T + 84 8 8226 680E [email protected]

H O N G KO N G

Robert AshworthT + 852 2846 3400E [email protected]

We are a leading international law firm with over 2,400 lawyers in 18 countries across Asia, Europe and the US. Our internationalexperience, combined with our local knowledge, means that we alwaysadd value, particularly on cross-border transactions.

www.freshfields.com

A leader in Asian andinternational M&A work

S H A N G H A I

Carl ChengT + 8621 5049 1118E [email protected]

S I N G A P O R E

Freshfields Drew & NapierDavid Simpson

T + 65 6535 6211E [email protected]

T O K YO

Freshfields Law OfficeFreshfields Foreign Law OfficeNaoki Kinami

T + 81 3 3584 8500 E [email protected]

Timothy WilkinsT + 81 3 3584 8500 E [email protected]